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Endowment cashing in policy advice

Hello,
First of all thanks to this excellent site (posts/responses/FAQ's) for the invaluable info that has led me to the point today, where I have received an compensation offer of appox £1,500 from Zurich over a mis sold endowment plan.:j

If some wise person could help me with a couple of questions about how best I should use the compensation and current surrender value of £4700 (from my endowment fund) to help to pay off my new fixed rate repayment mortgage.

Currently I can make overpayments of up to £500 per month on my new mortgage, should I cash in the endowment policy (note: I have stop making payments in to it) and put the compensation and £4700 in to an isa, slowly paying off £500 a month? What are the tax implications of having this money to pay off some of my remaining mortgage? In the offer Zurich say that I can claim tax compensation if I am liable for any!

Any ideas would be welcome:D
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