Endowment.... surrender or keep

guinness79

HI,

Right apologies but i am very poor on all things financial hence writing on here.

My husband and I have a joint mortgage with SLB, we have just come off a fixed deal and now on their SVR.... a whopping 5.5%

However our house has dropped in value and the LTV is over 90% so no one else will even look at us.

My husband has an endowment that he took out prior to us meeting, it has never been used against the mortgage and it has just been sat there and we were planning a on a lump sum in a few years

Our mortgage payments are so high we have decided to investigate if the endowment is really worth keeping or would we be better off cashing it in and paying off some of the mortgage to bring the LTV down to enable us to get a better rate

The figures I have are

Mortgage

Outstanding £171,452 (House Value £190,000 at a push)
Term Left 21 Years 7 Months
SLB SVR 5.54%

Endowment

Start Date 01/07/1993
End Date 01/07/2018

Premium Amount £77.40
Target Amount £40k
Sum Assured £19,640.00
Bonus's up to 31/12/2009- £9702.16

Projected Amounts
4% £29,500
5% £30,900
8% £38,200

Current Surrender Value £15,134.00


Thanks in advance for any advice

:-)

dimbo61

1 the endowment does not mature for another 7 years!
2 the current mortgage must cost you about £1152 a month ?
3 IF ! you went to YBS and took out the 3 year fix either fixed at 4.59% or offset at 4.69% you could pay the same amount each month and knock about 5 years off the term having cashed in the endowment and paid that off the mortgage balance ( allowing £1000 for fees)
Not Advice just an idea Good Luck

guinness79

Thanks dimbo.... thats what we were looking at

however i dont understand ur point on the endowment not maturing for another 7 years ....sorry really not too good on this type of thing :-(

Could you explain if that is good or bad

guinness79

anyone else?

dunstonh

Who is the endowment with?

The current position is virtually the same as the 4% projection. So, that suggests its a conventional with profits policy and is understating the likely return. (7 years left at 4% would not be the same value as it is now).

guinness79

Policy is with Royal London.....and yep it states it is a with profits policy?

But that does nt really mean much to me ... sorry

dimbo61

You have to wait 7 more years before you would get the money!
In the mean time you are paying 5.54% on the lenders SVR so could go up next month even IF BOE rate stays the same.
reducing you term from 21 years down to 16/17 years would mean that you would have paid a good part of the mortgage off in 3 years if you took the fix so LTV of 75% or less in 3 years.

guinness79

I see what you mean now!!

Guess what I am really asking is financially in the long term how will we be better off??


I have noticed on these boards people posting stuff like this and someone coming back with a calculation showing how they would be better off.... or not as the case may be....

hopeing one of u lovely finance orientated people out there can help me !??

dunstonh

I cant do it all at the moment as I havent got time. Someone else can fill gaps in if they want in the meantime.

Endowment current position is £29,342
Surrender value is £15,134

So, if you surrender now you lose £14,208. However, you still have £7040 of monthly premiums left. So, add that to the surrender value and you have £21,248

So, the current surrender value and premiums left will be £21,248 and that will get you £29,342 plus any future growth. Somewhere between 5% and 8% is likely. Possibly higher as it appears the terminal bonuses accrued to date are not included in the projections (not uncommon with conventional with profits plan)

You need to factor in cost of replacement life cover against interest saved on the mortgage. I am going to have to call it there as I have things to do.

50Twuncle

dunstonh wrote: »

I cant do it all at the moment as I havent got time. Someone else can fill gaps in if they want in the meantime.

Endowment current position is £29,342
Surrender value is £15,134

So, if you surrender now you lose £14,208. However, you still have £7040 of monthly premiums left. So, add that to the surrender value and you have £21,248

So, the current surrender value and premiums left will be £21,248 and that will get you £29,342 plus any future growth. Somewhere between 5% and 8% is likely. Possibly higher as it appears the terminal bonuses accrued to date are not included in the projections (not uncommon with conventional with profits plan)

You need to factor in cost of replacement life cover against interest saved on the mortgage. I am going to have to call it there as I have things to do.

Sorry to butt-in - but shouldn't the £7040 monthly premiums be taken OFF the surrender value, rather than be added TO the extra costs ?
ie) leaving just over £7k ?

dunstonh

21Twinkle wrote: »

Sorry to butt-in - but shouldn't the £7040 monthly premiums be taken OFF the surrender value, rather than be added TO the extra costs ?
ie) leaving just over £7k ?

No, you need to add it on as you need to compare the "keep" option against the surrender option.

If the plan is surrendered, you get the surrender value and dont pay the future premiums. So, you add those together and that is what you have in your pocket if you surrender. You the compare that against the option if you keep paying.