Homeplan Standard Life Endowment

rosslinn

Any comment or information appreciated as we are finding this difficult to make a decision on and we are really not financial experts. This is the first time I have posted on anything so hope it works.

We have SL Homeplan Endowment which was meant to pay of a mortgage of £31000 in July 2009. We changed £5000 of this to repayment about 2 years ago because projections were so bad. The endowment started in 1992.

We were turned down on mis-selling.

The endowment is in the With Profits fund

Present value of policy £19300.
Projections 3.75% £23,300 5.5% £24300 and 7.25% £25,200.
Monthly payment £85

We also fall in to the group which might receive the Endowment Promise. Last amount quoted as possible for this was £900 to £1300.

I am considering cashing in the plan, using to pay off some of the mortgage and changing the rest of mortgage to repayment. I think that this will cost about the same as my present payments each month but will give the guarantee of paying off this part of our mortgage by 2009. We also have another repayment mortgage and lots of other financial commitments (children leaving to go to study) so I want to try to make the best decision on this one. The impression I have from trying to work this out and talking to SL and others is that the present value is a lot better than it was and there is no guarantees about what it might be by 2009. It could be lower or higher than the projections.

Mortgage is with Nationwide on a fix of 5.09% but this ends in August this year.

I know we would also need to think about life insurance but cost of this seems quite low for the amount we would need.

Any comments on anything else we need to consider welcome.

Thanks

rosslinn

Can anyone help please?

MJMum

I don't know whether it's any help, but we have just cashed in the same type of SL policy started in 1993. However, we DID get compensation, so had been brought up to the point where we were no worse off than if we had been on a repayment mortgage. We got the windfall last year, and have now cashed out.

I guess whether you cash in now or not depends on whether you believe that SL will actually deliver any of their "endowment promise". As you have not long left to run, I might be tempted to let it run to maturity?

rosslinn

Thanks MJMum for the reply. As far as I can remember we were turned down for compensation because the Financial Adviser we bought the plan from and the paperwork stated that the investment could fall. At the time we were concerned about this but assurred verbally that it would not happen. We had been on a repayment for several years before 1992 and before speaking to this adviser had looked at changing to another endowment so that also went against the compensation offer. I suppose we did know the risk.

For me the attraction of selling policy now is that I would have the guarantee this mortgage will be paid off in 2009.

EdInvestor

Projections 3.75% £23,300 5.5% £24300 and 7.25% £25,200.We also fall in to the group which might receive the Endowment Promise. Last amount quoted as possible for this was £900 to £1300.

If you surrender it now and use the lump sum to reduce the mortgage also overpaying it with the endowment premiums to maturity, you should end up with the equivalent of 24,590.

The WP fund is unlikely to produce a return of more than 4% in the timescale, so even if the endowment promose produces the goods it looks to me you won't lose out if you go now.The policy does include life cover of course so replace that first if you need to.It's unlikely the cost of that would make a material difference unless you have health issues.

rosslinn

Thanks Edinvestor. I had tried to work this out but very helpful to have someone else look at it as despite trying to understand this I am not sure about any financial sums I do. My resolution is never to do any future financial transactions that I do not understand. Could I ask is your figure based on our present interest rate for our mortgage?

Anyway this adds strength to the case for surrendering. At least this part of the mortgage will be paid off and I can stop worrying about whether the policy might drop more in value before 2009.

We can only overpay by £500 extra each month until August due to the tie in however someone suggested if we change to a repayment we could pay quite a bit extra in over the next 5 months and pay the rest of the SL cash in September. I will be paying in the endowment payments as well as the existing interest payment.

Thanks again.

Gorgeous_George

I check my 'early maturity option' policy each month on-line and since 1st Sep 06 the policy has achieved approximately 3% in 5 months, equating to almost 7% annually.

My policy expires in Jan 2010 and, whilst I'll be watching closely, I intend to see it out to maturity.



GG

rosslinn

Thanks for this GG.

Is your endowment a Homeplan policy? It seems to differ from other endowments in that it is unitised or Unit linked. (No one wants to buy them because there is no final bonus - I think)

I have checked surrender value late this afternoon and it has gone up by £200 although we have paid the premium today £85. We only have 2years and 4 months to go so it seems to me that it would have to do very well for all of that period to pay any more than £25,000.

EdInvestor

rosslinn wrote:

Could I ask is your figure based on our present interest rate for our mortgage?

Yes.Re switching to a repayment, it's hardly worth it for the period available especially as interest rates are quite high, is it? Given the fees you would likely to incur perhaps better just to overpay the existing loan?

rosslinn

Thanks again Edinvestor.

I will check this carefully but I was under the impression we would keep the existing rate (5.09%) until September and there would be no charges to change to repayment under the tie-in we have. If there are charges we would leave as it is and pay the £500 extra until August and the pay in the rest before we decide what to do with the remaining mortgage.