L&G offer compensation - but I have to surrender policy

jamesd

skintbrummie, here is some idea of how your investments will need to perform to meet your target. To pay for a 47,000 mortgage with a 5.49% mortgage the interest only mortgage payment would be 215.03 and the repayment mortgage would be 288.34, leaving 288.34 - 215.03 = 73.31 as the amount you can pay without being worse off than a repayment mortgage.

Starting with the 21,000 you have available if you cash in or sell the policy and adding 73.31 per month your investments must grow by 8.7% each year to meet the target.

They probably won't in the endowment.

Here's how much you need to pay each month to hit your target for several different investment return values, assuming that all of the 21,000 and all later monthly payments are put into the investment:

5%: 171 a month (both partner's halves = 171 total)
6%: 145
7%: 118
8%: 92
9%: 66
10%: 40

If your mortgage is at 5% and you want to be really cautious and do it only with the mortgage, this means that you would need to pay off the 21,000 and then pay 171 a month plus your normal payment to have it cleared by the end. If your payment reduces, don't let it - you must keep it at the same amount each month, so you may need to ask the mortgage company to arrange that. Getting it set twice a year will be close enough.

Alternatives:

1. You can get between 5% and 6% after (no) tax in cash ISA accounts. You can get 7-10% before tax or 5.6-8% after basic rate tax using regular saver accounts but you can't get it for all of the money all of the time so this combined with normal savings accounts would get you perhaps 4-6% after tax. If either of you pays no tax you can put the money in their name and tell the bank that they aren't a tax payer. Add 171 a month and you should hit the target fairly closely. This is better than putting the money all into themortgage if the interest rate form this is higher than your mortgag einterest rate, otherwise it's worse. the monthly payment is the same just to give some safety margin at the end, 10 lower might be enough.

2. Assuming that you sell the policy to get the 21,000 you could do this.

If you get the money before the end of this tax year:

Each of you put 3000 this tax year and 3000 next tax year into the highest paying cash ISA you can find. This uses 12,000 leaving you 9,000 to use, put that into a high interest savings account and transfer it from there to do what I suggest next.

Put 4000 for each of you into a mini stocks and shares ISA this year and add 115 each month next year, then 60 each for the rest of the years.

3. If you get the money next tax year:

Each of you put 3000 into the highest paying cash ISA you can find. This uses 6,000 leaving you 15,000 to use, put that into a high interest savings account and transfer it from there to do what I suggest next.

For next tax year each of you puts 333 a month into a mini stocks and shares ISA. This uses 8000 more and leaves you with 7000 + 1740 for the extra monthly payments you need = 8740 left to invest at the end of the year.

The year after that you both put in 333 a month into a mini stocks and shares ISA to use another 8000 leaving 740 plus the 1740 for extra payments = 2480 to use. You put that into a mini cash ISA at the start of the year.

From then on you both put 60 a month into a mini stocks and shares ISA until you repay the mortgage.

In both cases it would be good to add more per month to the cash or stocks and shares ISA, since it would give you extra safety margin at the end.


What is the interest rate on the mortgage? If it's higher than 5.75% it would be better to put the money in there instead of using the cash ISAs.

If you can afford to add more than about 120 a month you could consider not using the stocks and shares ISA but otherwise it really should be there to give you a chance of hitting the target. You'll need to select at least medium risk, we can give you suggestions later.