Advice on surrendering endowment please

twok

Hi everybody,
I am looking for advice on what to do about my endowment policy.

i took out a ten year interest-only mortgage and endowment policy in 1996. Like everybody else, i guess, my endowment has not performed as well as expected . In may 2003, I changed my mortgage to a repayment type and carried on with the enowment as well. i am now thinking of surrendering my endowment and paying it towards my mortgage, this will almost clear my mortgage and i will save on paying interest. My question is does this sound sensible and are there any tax implications if i do this?

Any comments greatly appreciated.

dunstonh

10 year endowment?  ouch.

There is a potential tax liability if you are a higher rate tax payer or close.  Although you should check the start date on the plan.  If it has run for at least 75% of the term, you should be able to avoid High rate tax as it has passed the qualifying period.

Is it right wrong to cancel?  That depends.  Is it unit linked, with profits, what is the target growth rate on the plan?  what is the current value and surrender value?

If the difference in the current value and surrender value isnt great and the surrender value can cover the outstanding mortgage balance then it could be considered a valid option.  Calculate the mortage interest you would pay until the the end of the mortgage and if that is more than the difference between the current and surrender value, then you could save money.

twok

Thanks for your comments DD.

Why ouch?

The policy has run for eight years, so 80% of term. i am not (fortunately ???) a high rate tax payer. it's not a 'with profits' type policy. by my rough calculations, the differnce in the surrender value 12 months ago and now is roughly equal to the premiums i have paid for the last 12 months, so not much gain by carrying on with the policy. By surrendering i will at least save the terest charges.

dunstonh

ouch because anything less than 15 years for an interest only mortgage backed by a investment product is very high risk