Endowment.please Somebody Help Me Make A Decision

9shell

I am considering cashing in my endowment policy to cover some of the my arrears and debt but I have been given conflicting advice about doing so.
Debts and arrears built up due to my ex husbands gambling and I have since been trying to pick up my life with my children but cant seem to manage well. Im on benefits and have very little money to spend.

I have a mortgage which we took out for our present home in 1986 and goes like this:

We originally borrowed 100% for the purchase of our home, £30.000 via Halifax and £10.000 top up loan. With a with profits endowment for a 25 year term.

The payments for the £10.000 top up loan is £80 monthly fee which the dss pay £49 we top up £31 a month. The interest on this loan is 8%.

On the Halifax £30.000 the monthly payments are £353 per month of which the dss pay £149 per month and I can only manage £30 a month on top. Which leaves a monthly shortfall of £174. Ive been told I cannot be offered a better deal because I am in arrears.

Just to clarify, The Halifax loan,on 5%, has now gone up to £37.000 with the arrears and interest accrued but the dss pay for the original amount borrowed which explains the shortfall.

The endowment payments are £51.51 a month with 4yrs left. It has a surrender value of £20.000.

I also have a credit card debt of £3500 on 0% until February which ive been tarting with for the last 3yrs and I owe £1000 to the social fund.

I receive £340 a month from the DSS which without my dads help would be impossible.

I have thought about selling, its worth around £230.000, but it is only a two bedroom house and I doubt I.ll be able to afford another one once all the charges and debts have been paid off.

Would it not be a good Idea to reduce my mortgage by selling off the endowment? Or is it a mad idea?

EdInvestor

Hi 9shell

Sorry to hear sabout your struggle.:(

Cashing in the endowment is very likely to be the way forward, but post some more info so we can be sure we're not missing something.

Provider
Guaranteed sum assured
Declared bonuses
Up to date surrender value
Maturity projections

Will you need to replace the life cover if you surrender?If so, you might do a quick internet search to check how much that will cost, so it can be factored in.

What is the position with the DSS payments? : will they continue to pay you the same amount regardless of the structure of the loan(s)? Or would it be optimal to pay off the top-up loan down to the level where the DSS money pays the interest, and similarly with the other loan, using the endowment premium to top up your payment and hopefully stopping any more arrears build-up?

Seems to me that since you have more than adequate equity in the property to clear the mortgage later, increasing disposable income should be the aim, along with stopping more arrears from building up if possible.

So a two stage process might be best, first sorting the endowment and then later when interest rates come down, remortgaging to a new cheaper i/o mortgage - but that depends on the way the DSS payments work, obviously ( which is not an area I know much about).

toonfish

how is the halifax mortgage £353 per month - interest only for £30K should be less than £200?

9shell

Thank you Toonfish

Im not sure why Im paying £350 to the Halifax, however, I now owe the Halifax £37,000 and not £30.000 as originally borrowed, could this be why?

9shell

EdInvestor wrote:

Hi 9shell

Sorry to hear sabout your struggle.:(

Cashing in the endowment is very likely to be the way forward, but post some more info so we can be sure we're not missing something.

Provider
Guaranteed sum assured
Declared bonuses
Up to date surrender value
Maturity projections

Will you need to replace the life cover if you surrender?If so, you might do a quick internet search to check how much that will cost, so it can be factored in.

What is the position with the DSS payments? : will they continue to pay you the same amount regardless of the structure of the loan(s)? Or would it be optimal to pay off the top-up loan down to the level where the DSS money pays the interest, and similarly with the other loan, using the endowment premium to top up your payment and hopefully stopping any more arrears build-up?

Seems to me that since you have more than adequate equity in the property to clear the mortgage later, increasing disposable income should be the aim, along with stopping more arrears from building up if possible.

So a two stage process might be best, first sorting the endowment and then later when interest rates come down, remortgaging to a new cheaper i/o mortgage - but that depends on the way the DSS payments work, obviously ( which is not an area I know much about).

Thanks Edinvestor.

The DSS have agreed to continue to pay like with like, in other words, they will pay a new mortgage loan as long as its the same amount they are already paying. Unless I pay off my arrears though I am not in a position to get a better deal. So frustrating!

toonfish

9shell wrote:

Thank you Toonfish

Im not sure why Im paying £350 to the Halifax, however, I now owe the Halifax £37,000 and not £30.000 as originally borrowed, could this be why?

unless the interest rate is 11% then no. Perhaps they are reclaiming some arrears, or they have you on a repayment mortgage?

dunstonh

The value of the endowment isnt included in any test for benefits. However, If you surrender the endowment and do not use it against your debts it then becomes personal savings and you could find means tested benefits get reduced/removed depending on the amounts involved.

So, make sure the endowment proceeds, if surrendered, will not impact on your benefits.

9shell

Thanks dunstonh I appreciate your advice.

9shell

toonfish wrote:

unless the interest rate is 11% then no. Perhaps they are reclaiming some arrears, or they have you on a repayment mortgage?

Thanks Toonfish. I dont know, I have very limited understanding of figures and sums but you have prompted me to call them and check.

9shell

EdInvestor wrote:

Hi 9shell

Sorry to hear sabout your struggle.:(

Cashing in the endowment is very likely to be the way forward, but post some more info so we can be sure we're not missing something.

Provider
Guaranteed sum assured
Declared bonuses
Up to date surrender value
Maturity projections

Will you need to replace the life cover if you surrender?If so, you might do a quick internet search to check how much that will cost, so it can be factored in.

What is the position with the DSS payments? : will they continue to pay you the same amount regardless of the structure of the loan(s)? Or would it be optimal to pay off the top-up loan down to the level where the DSS money pays the interest, and similarly with the other loan, using the endowment premium to top up your payment and hopefully stopping any more arrears build-up?

Seems to me that since you have more than adequate equity in the property to clear the mortgage later, increasing disposable income should be the aim, along with stopping more arrears from building up if possible.

So a two stage process might be best, first sorting the endowment and then later when interest rates come down, remortgaging to a new cheaper i/o mortgage - but that depends on the way the DSS payments work, obviously ( which is not an area I know much about).

Sorry EdInvestor I forgot to provide the following endowment details.

Provider: Norwich Union.

Garanteed sum assured which will be payed on 5 mMarch 2011 will be: £13,791.

Declared bonuses: £10,883,40.

Up to date surrender value: £25,244.

Maturity Projections:
On 4% will be £30,000.
On 5% will be £31,700.
On 6% will be £33.000.

Hope this is helpful. Thankyou for taking the time and interest, I appreciate your advice very much.

9shell

EdInvestor wrote:

If you cashed the endowment in and used it to repay the mortgage @5% also paying in the premiums to maturity, the return would be 33,446, better than they are projecting at 6% and no risk.(Obviously you will get more as you would pay down the loan at 8% first.)

So I'd surrender it.You might like to try and see if someone will offer you more for it on the market, see if these people will give you a quote:

https://www.apmm.org

I too suspect you must be on a repayment mortgage. But in any case if you pay off the 10k loan and dump the endowment, that will liberate 100 quid a month to add to the DSS payment of 149 a month on the other loan. Reduce the larger mortgage by a further 15k from the endowment proceeds and you are probably in shouting distance of covering the total mortgage with no need for extra payments from you or arrears building up.

If you aren't, then a small extension of the mortgage term will probably do the trick, plus you will have an extra 61 quid a month to live on..

Thank you so much EdInvestor. Your advice is much appreciated and you have given me some valuable and sensible pointers to think about. You really have been most helpful.