My mortgage is weird! Advice please!

phil7445

14 years ago I got an endowment mortgage. As we all know, more recently since then, they are unlikely to pay off the mortgage, so my advisor recommended a part repayment and part endowment mortgage.

People talk a lot about paying off their mortgage early, and that thought sounds good, if it is possible to put a bit aside each month. However, is this possible in my case? As the endowment policy expires at a fixed date due to a specific amount of payments into it. Or does it mean it would be possible to pay the repayment bit of the mortgage only early? Therefore reducing the payments in the final few years.

Thanks.

Mr_helpful

You can pay down the capital on your mortgage its just you wont get the money from the endowment until the maturity date

phil7445

So I guess if I pay money here and there into it (over my normal monthly amount obviously) then it would in effect reduce the repayment part of the mortgage.

Also I have tried putting my details into mortgage calculators but it doesn't really work.

EdInvestor

Of course you can always surrender the endowment and reduce the mortgage owed with the lump sum, also paying in the saved premiums to further overpay the loan.

Post some info about the endowment to see if that would be sensible:

Provider
Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
maturity forecasts
Interest payable on mortgage(s)

phil7445

I don't think it is worth surrendering the endowment yet at all.

I am in employment and can easily afford my monthly mortgage payments. The current value of the endowment is less that half what my advisor says it would be worth at 4% at the end of it. I have about 11 years left on it.

I am just wondering the impact of making extra payments when I can afford to, and if it is worth doing.

Although I do plan to move this year and probably borrow more money to buy something bigger.

EdInvestor

phil7445 wrote: »

The current value of the endowment is less that half what my advisor says it would be worth at 4% at the end of it.

Apart from the fact that your advisor can't know anymore than anyone else what your policy will be worth when it matures, what you should be looking at is whether the endowment will perform better than a modern risk-based investment, with lower charges and better tax status.

You could expect a 7 per cent return from such a risk-based investment.You don't expect to have to take a risk to get a 4% return: that's what you get in a deposit account.

phil7445

Ok I meant what my advisor suggests.

The endowment always says "what you might get back at the end date".... "if our investments grow at 4%" ...."5.5%"...... "8%". and gives 3 figures. My advisor has based the endowment part of my mortgage on the 4% figure.

Although I guess if there are now low risk investments which will pay 7% then maybe that is a better option. Can you maybe give me some examples? What do you think ID "Mr Helpful"?

Mr_helpful

Personally I would think carefully about cashing in endowment. It was probably front loaded with charges which means you have paid the majority of the charges for the full term of the policy already so a new investment may or may not be any better. You would posibly need to replace the life assurance. Endowment growth tends to be best in latter years.
If you can afford to pay down the capital on your mortgage then it is probably not a bad idea especially if you have a mortgage that allows you to do it and has daily interest calculation. I paid off my first house by reducing the capital and then finished it off with the endowment.

EdInvestor

There are a few reasonably decent endowments at mainstream insurers (the Pru/Scot Amicable, Norwich Union, and some at L&G) that will probably return 6% or a bit more and may be worth keeping.That's all.

But any endowment that is forecast to grow at only 4%, particularly if it is a zombie endowment ( eg R&SA, NPI, Pearl, Equitable,Phoenix,Alba etc) and even those which are a little better ( Standard life, Friends Provident) has got to be regarded as a candidate for the chop.

Why would anyone keep paying into a risk investment that is forecast to pay out less than net cash? :huh:

He would make a considerably better return by cashing it in and reducing the size of his mortgage especially at today's standard variable rates ( blimey, you could make 7% return at some banks, that's almost double the forecast return on the endowment, and you make the return now.)

Mr_helpful

ER all endowments carry a 4% projection. He could get more or even less than this. I would be good advice to look at what its really done over the last few years just to get an Idea of how its going. Of course past performance is no guarantee of future performance.
What investment would you advise then not forgetting to compare like for like you will have to replace his life assurance. I think you could end up costing this person a fair bit more

phil7445

If you read what I wrote more carefully, EdInvestor, I said, when talking about the annual statement:

"The endowment always says "what you might get back at the end date".... "if our investments grow at 4%" ...."5.5%"...... "8%". and gives 3 figures. My advisor has based the endowment part of my mortgage on the 4% figure.

So my advisor is taking into account a worse case scenario. If interest rates go up then I will be smiling. Although I actually like low interest rates as it makes monthly mortgage payments low!