cash in endowment 17 months early or take out bigger mortgage?

Andy_ArT_Trigg

MortgageMamma wrote: »

Has someone told you to encash these endowments or did you think of that by yourself? It would be really unwise to do anything with them if you only have 17 months to run - the penalties would most likely outweigh the potential benefits of doing so. Have you received written surrender values from your endowment providers?

It's just my own thoughts, the only advice I've had so far is from this thread. Thanks to everyone so far for the helpful replies.

A further complication is that having to borrow an extra £22,000 means my new morgage payments could be approx £175 more each month (I'm looking for a 15 year mortgage)

This means that when I get the endowment money and pay it off the mortgage, even though the cash injection will shorten the term - I'm still stuck with the higher monthly payments which if interest rates rose a lot could be troublesome.

I suppose this is where it starts to get more complicated :-) I'm prepared to struggle for the 17 months until the policies mature (paying the higher mortgage and the insurance premiums) if I'm likely to get several thousand pounds more for them, but if it were only to be several hundred pounds more it may be be better to borrow less, and have lower monthly payments.

There are 2 endowments and I've been up in the loft and routed out some actual figures that may help. They may be several months to a year old but these are the latest figures I have -

Main Endowment (Prudential - formally Scottish Amicable) -

Target amount £15,675

Projected final amount -

4% growth - £17,500
6% growth - £18,500
8% growth - £19,600

Current surrender quoted - £17,566


Second endowment (Legal & General) -

Target amount £4,300

Projected final amount (as of May 2006) -

4% growth - £6,050
6% growth - £6,370
8% growth - £6,660

Current surrender quoted - £5,657

Both mature in August 2008. Many thanks again

EdInvestor

This article seems to suggest ScotAm terminal bonuses went up from 51% to 55% this year.

We won't really know if that can be sustained until we see how the stockmarket performs over the rest of 2007.

jamesd

Both of the endowments appear to be well over target even with quite pessimistic projections, so it continues to look like a good idea to retain them.

You could add the extra cost of the interest and premiums to the money you borrow, then put it in a savings account and transfer it to your main account each month. You'll get all but 155 (the cost of interest on 2174 for 17 months at 5%) back when you pay off the lump sum with the endowment. Or go for an interest only mortgage and overpay to whatever level is comfortable.

Your mortgage lender may automatically reduce your payments on a repayment mortgage after a lump sum payment, if not, it's likely that they will on request. Best to ask them.

Interest only with overpayment up to the repayment mortgage amount is very flexible and worth seriously considering regardless of what you intend to pay.

dunstonh

Main Endowment (Prudential - formally Scottish Amicable) -

Target amount £15,675

Projected final amount -

4% growth - £17,500
6% growth - £18,500
8% growth - £19,600

Current surrender quoted - £17,566

Look at the flaws in the projections (which are often mentioned on this board). The surrender value is higher than the 4% projection. Just think of all the people that surrendered good endowments on track to hit surplus because the projection system leaves off final bonuses (which is where the biggest return is going to be).

Andy_ArT_Trigg

So are these projections definitely not including a terminal bonus, which could be substantial? They never even mention that the figures *don't* include a bonus - even in their reasons for not surrendering lettters. If the 4, 6 and 8% figures are "projected" that means they are estimated, why don't they estimate the bonus too I wonder?

I can see from my paperwork that in 2003 the Legal & General with profits bonus statement said, "current final bonus rate % = 40" and on 31 Dec 2005 it was "84".

dunstonh

Most conventional with profits plans do not take into account final/terminal bonus that is currently allocated to the plan. You you cant say all.

If you look at the example above. It has a surrender value of £17,566. That is higher than the 4% projection. That is one of the key indicators that show the final bonus isnt included in the projection. The surrender value will include the final bonus that is currently on the plan. So, that pushes it higher than the projection which doesnt.

EdInvestor

The surrender value includes accumulated terminal bonus.

So work out the likely maturity values at the standard percentage rates using that figure.Include the effect of compounding on the S/v and your additional contributions.

Plenty of compound interest calculators on the web to do the job .