What to do with my endowment payout?

NTG_2

Bit of advice from some experts out there please:

My mortgage is part repayment and part endowment. The mortgage term runs to 2018, but the endowment matures in 2012 (it's an old endowment that i started for my last property and kept it going when I moved house) I have been over paying into the repayment part of the mortgage, so it will end early, about 2014. My endowment is for 40k, matures next year and will be paid directly to me, it will be about 15 to 20k short.
My question is; what should i do with the 20k-ish endowment money until the mortgage finishes, pay off some of the mortgage, invest somewhere?
I pay tax at the higher rate, my mortgage is .29% above base tracker (with a minimum level at 2.35%) for the life of the mortgage. I don't have any ISA's.

Thanks in advance,

Nick.

hillcats

Is it an offset mortgage, that would be my first thought...

holly_hobby

Good point raised by previous poster on offset mortgage.

If not on offset .. the ordinary advice is to always reduce your liabilities as and when, with any capital available - as you invariably will be charged more interest on borrowings, than you will ever acheive on savings .. that was until the recent falllout in the markets - and the resulting all time low BOE base rate (& resulting low cost of mge borrowings, especially for those on older tracker deals such as yours - which had a low loading on base (my own arranged just before the crash is 0.9% above).

So to that end, if you don't want to make a part redemption with either all or part of the capital recd (and reduce the monthly total mge outlay you have, or keep payments as they are and effectively reduce the term), and instead would rather seek further gains on the capital sum, you may want to retain some or all of the monies in a savings/investment vehicle (if the noted returns (after tax) are higher than you are being charged for your borrowings that is).

As a higher rate tax payer you should obviously initially be exhausing all tax free vehicles available to you, such as ISAs.

If your spouse is a basic rate payer or currently under their income tax threshold, (apart from the obvious tax free ISA), you may want to use their available allowances for further investment in to tax paying vehicles - with taxable gains chargable only once their nil rate band exceeded.

All tihs, before investing under your own steam into any tax incurring vehicles - as the derived interest/gains will be charged at your highest rate.

You also need to consider increasing (if not already ) converting the equivilent of the estimated interest only (endowment) shortfall element of the mge, to repayment, and/or make overpayments when possible to further erode any possible shortfall that will realised on policy maturity. (hopefully when the endowment does mature, the shortfall may be less than that estimated at the moment ... fingers crossed !!).

If you wished to go this route - a good whole of market adviser will assist in seeking the most appropriate vehicles & providers to suit your financial situation and overall requirements.

Hope this helps

Holly

silvercar

I pay tax at the higher rate, my mortgage is .29% above base tracker (with a minimum level at 2.35%) for the life of the mortgage. I don't have any ISA's.

If you can get a savings rate over 2.35 net of tax, it makes sense to put the money into savings.

It also makes sense to open an ISA as that would give you savings that are tax sheltered.

silvercar

Out of interest, how much were your monthly endowment premiums. I only ask because I have an endowment finishing next month that is paying out very nearly the full 43k and my premiums are £70 a month. (ive also got one paying out in 2013 that is only looking at paying about half the original amount, so its not all rosy).

NTG_2

Apologies for the delayed reply.

hillcat, it's not an offset mortgage.

silvercar, thanks for the info, I was sort of thinking along those lines. My Standard Life endowment started in 1987 and I pay just under £50 per month. It's due to mature November next year and the value at 1 Feb 2011 was just over 22k. Hopefully it will be nearer the mark as holly hobby suggests. Looks like you've done well with your first endowment.

Holly, thanks for your advice. My wife pays tax at the lower rate and I had not considered using her tax allowance. Also, you're point on converting the shortfall into a repayment is good advice. I think I can borrow a further advance on equity to cover the shortfall without changing my interest terms. I just need to keep a small balance open on my existing repayment mortgage until the further borrowing is paid. The only negative is that i can not overpay into the further borrowing for two years.

Lots of good info for me to think about, thanks again.

Nick.