Partial Remortgage - Endowment reached target value for part of it

Wickedwitch67

Hi

Bit of a complicated one but I'd appreciate any advice anyone can offer.

Our mortgage is currently £35K interest only and about £12K repayment. Our endowment policy has reached the £35K target value although it won't mature until May 2013 with a projected surplus of about £9K. This is only because I have paid extra into it over the last few years.

However we are wanting to remortgage to clear some debts and do some major home improvements. We are looking to borrow a further £60K but if we have to include the £35K interest part as well as the £12K repayment part this will take us to just about the current value of our house, which will probably mean we are refused. With just the £12K repayment balance there shouldn't be a problem.

So my question is.. is there any way we can 'unsecure' the £35K from the mortgage, with evidence from Zurich that the target amount has been achieved, and just continue to pay the interest on it separately until the endowment pays out in 2013 without having to include it in a whole new re-mortgage deal?

I've no idea if this is in any way possible but a colleague seemed to think it could be done.

All advice greatly appreciated!

hcb42

why not just cash in the endowment and pay off the £35K.

THere are implications to that of course, there might be terminal bonuses you would lose out on. On the other hand the market could crash and you havent got £35K any more anyway..

I cannot see the logic in the other plan - I cannot see the lender liking it myself.

Will these home improvements have any significant impact on the house value? Otherwise it would seem risky to remortgage to that level of debt/equity having presumably have been paying it down for many years if your endowment is now maturing.

Wickedwitch67

Thanks for your reply. As you say, there are implications to cashing in the policy now. It is on schedule to pay out £9K profits which I really don't want to risk. I appreciate that the market could crash but that's a risk I think we have to take. We're both mid 40s and would only be looking to borrow for 15 years so we'd be planning to have everything paid off by the time we retire - health/jobs permitting of course.

And yes the improvements will have a signficant impact on the house value. You're probably right that a lender wouldn't go for it but it's worth asking. I hadn't even thought about it until someone else suggested it.

holly_hobby

There is a little confusion here ..

If the policy is a with profits policy - its growth is achieved by the addition of reversionary bonsues, which once added, can not be withdrawn, or fall in value. The uncertainity from here, is the value of any further reversionary bonuses added, and if there will be a TB at maturity, and if so how much it will be. i.e the minimum your policy would now be worth at maturity is 35k (the target fig) , (subject to all future prems being maintained)

If however you have a unit linked contract - then policy return is achieved by the purchase of units in the chosen investment fund, which are done so from your monthly premium (following provision for life cover).

Accordingly, the value does indeed depend upon the value of the units in the chosen fund, on the day of encashment. So, in theory the value of policy could differ on a daily basis (marginly or wildly dependant upon fund management and market activity). Unit Linked contracts also do not benefit from the possability of a Terminal Bonus at maturity.

You are unable to ringfence part of your mortgage debt, as the whole amount is secured on the property, and to be fair unless your endowment is assigned to the lender, you may well elect not to use the proceeds to repay the mortgage - which naturally they need to consider in your proposal.

So the options are, surrender the endowment, use 35k to redeem the IO element, and any extra to wholly fund the capital injection you need, (to reduce the additional amount of extra borrowing you require (ideally effected on capital and interest to ensure payment at redemption date).

Hope this helps

Holly

Wickedwitch67

Thanks Holly. That is very helpful. Clearly I need to have a detailed review of all our endowment paperwork to understand the exact terms. I think however that it is unit linked as the letter confirming target maturity says "the value of the plan will continue to fluctuate with daily unit prices and may go down as well as up.."

Zurich have offered us a number of options but finding someone who will give impartial advice is difficult. In case anyone reading this can the options are:

Take the cash value to repay your mortgage and cancel your plan

Surrender enough of your plan and pay off the mortgage covered by it. You could then continue paying your contributions to keep the valuable protection going and build up further cash. This partial surrender option is available but would be subject to evidence of health and we could reduce the continuing sum assured by the amount of the surrender if there was an immediate claim.

Switch the investment into one or more of the range of funds available to you. Whilst you are considering the options available you could transfer into the Fixed Interest AL, which can be used to preserve the value of your plan.

Baffled! We pay £173 per month and the last payment is due in May 2013. So 17 months tops - or £2941.