What to do with Endownment maturity payment?

stulaunch

I have just had an Endownment policy come to maturity, (Prudential).

Now i want to pay it off my Mortgage, but am told by Pru that Alliance and Leicester have told them that they have no holding interest in my maturity payment.
I thought it was assigned to A&L but not so.

I am in a Fixed rate until 31st Dec 2010 and if i payed this off now then i would occur penalties.

They have said i can pay it off after this date without penalties.

The 1st thing is i have no idea where to put this money untill then, its about £20,000, so any help would be appreciated.

I believe there is no interest to pay on Endownment maturities, but i presume i will have interest to pay on any interest earned on this, or is there any way to save this without interest. Neither of us have used any of this years ISA limit yet, but i didn't really want to spread it all over the place because come Jan 1st i want to pay it off mortgage.

The other thing i'm concerned about is come 1st Jan my fixed rate with A&L becomes Base Rate + 0.75% and i have been told that paying then would not alter that, but i have been told a few things lately by A&L that have not been correct.

Help would be greatly appreciated because weve never had this amount of money before so i have no idea what to do.

Thanks

dunstonh

The 1st thing is i have no idea where to put this money untill then, its about £20,000, so any help would be appreciated.

Your only logical option is a savings account. However, dont rule out paying off the mortage early if you cant find a savings account that pays a high enough rate.

opinions4u

stulaunch wrote: »

I am in a Fixed rate until 31st Dec 2010 and if i payed this off now then i would occur penalties.

A key question is "how much?". What is the specific penalty clause that applies and what rate is being charged?

The 1st thing is i have no idea where to put this money untill then, its about £20,000, so any help would be appreciated.

Easy access savings account such as www.theaa.com/savings or www.egg.com pay 2.8% gross.

I believe there is no interest to pay on Endownment maturities

I assume you mean tax, not interest. Most mortgage endowments are qualifying policies, so any tax liability has already been discharged by the life assurance company.

but i presume i will have interest to pay on any interest earned on this, or is there any way to save this without interest. Neither of us have used any of this years ISA limit yet, but i didn't really want to spread it all over the place because come Jan 1st i want to pay it off mortgage.

A couple could put £10,200 tax free in a cash ISA (2 x £5,100). Over 6 months, at 2.8%, this is worth just short of £30 to a basic rate taxpayer. Worth the effort, unless you have other plans for your ISA allowances.

The other thing i'm concerned about is come 1st Jan my fixed rate with A&L becomes Base Rate + 0.75% and i have been told that paying then would not alter that, but i have been told a few things lately by A&L that have not been correct.

Assuming the information is correct, that means that you will be paying 1.25% on the mortgage based on today's rates. It actually makes sense NOT to repay the mortgage if it charges less interest than you can earn in savings. If the difference between savings and mortgage rates remains the same, this would be worth around £200 a year to you.

If, however, the mortgage rate overtakes the savings rate then you would want to pay the mortgage off at that stage.

I hope that makes sense.

Dig out the original mortgage paperwork. That will answer the question about what the penalty clause is, and it will also confirm what the "go to" rate is next January.

dimbo61

You need to speak to your lender re the ERC charges but with only 6 months until your deal ends I would just stick it in ISA,s and savings accounts giving you the best interest rate and wait until 1-1-2011 then consider your options.
You dont give your mortgage balance so we dont know if £20K will clear the mortgage but I guess that paying £20K off the balance will make a big impact on the outstanding balance and then overpay to clear the rest asap.
GOOD LUCK

stulaunch

Thanks for replies.

The £20,000 Endownment maturity covers about 1/2 of my Mortgage, and i'm on a fixed rate until 31st Dec 2010 of 4.44% then it reverts to 0.75 above base.

I have asked what the charges would be if i paid the £20,000 off now and it would be £525.
So i guess i will be better putting it in an easy access account until Jan.

dimbo61

Have you got any emergency savings ?
If not consider keeping some back and make a big Overpayment in Jan.
Then ask you lender to keep your monthly mortgage payment static at the same rate you have been paying while on the fix.
This would mean you notice no difference in your mortgage payment but the effect of the overpayment and the new lower mortgage rate would help clear the mortgage quicker ( saving you thousands in interest payments)
Only my views Good Luck

Wh05apk

Most lenders will allow you to make over payments/capital repayments of 10% so potentially you may be able to repay £4k now, however if you are only paying BR+0.75% (find your offer to confirm this, sounds plausable) then you may actually do better sticking into an ISA.

stulaunch

Wh05apk wrote: »

Most lenders will allow you to make over payments/capital repayments of 10% so potentially you may be able to repay £4k now, however if you are only paying BR+0.75% (find your offer to confirm this, sounds plausable) then you may actually do better sticking into an ISA.

Well i rang A&L again and i can pay £499 per month whilst i'm on fixed rate without penalty.
So i'm contemplating putting maturity payment in their online saver issue 7, which pays 2.81% gross, then paying the £499 a month till December, then look at it then. It definately is BR+0.75 from 1st Jan so i'm very happy with that.

dimbo61

Best plan would be to stick £3500 into saver issue 7 so drip feeding mortgage overpayments of £499 a month until december and £10,400 in cash ISA,s with you and OH and find a regular saver to put £500 a month in.
When your mortgage rate drops to 1.25% you should be able to find better savings rates even after TAX