How to best rectify endowment short fall?

Dex58

I have recently received notice from my endowment company of a probable short fall and want to take steps to rectify this but not sure how best to do it. I have an £80k mortgage made up of 2 x 30k interest only (covered ho ho , by 2 x endowment policies) and a 20k capital repayment.
The endowment policies mature in 2012 & 2017
I have a fixed rate mortgage of 4.69% till 2010.
I am allowed to over pay my mortgage by up to 5% per year without penalty.
Supposing I can afford to overpay an extra £100 per month, what is the most efficient way to reduce my mortgage? For instance would the £100/month come off the “repayment mortgage” (20k) or the capital of the interest only mortgage (2 x 30k)?
Can I choose? Does it matter? And if so which would be most efficient?
I’m thinking that my fixed low mortgage rate is something I should take advantage of but perhaps putting £100 / month in a savings account is a better option?
I have asked the question of my lenders but they only seem to interested in my instructions rather than giving advice.
Any feedback would be appreciated.

Mr_helpful

I dont think you will have that much to worry about. the first endowment matures in 2012 so whatever you get from that use it to pay off a chunk of the mortgage then keep your mortgage payments the same including what you were paying on the endowment and you will be overpaying quite a lot.

dunstonh

I have recently received notice from my endowment company of a probable short fall

What you have received is a projection at example rates. The endowment could be doing a lot better than those rates or a lot worse. They are just examples. It would be a good idea to find out what the endowment is actually doing and what future potential it has. Do not rely on projections.

JoeK_3

Who are the endowment providers?

Are they with profits or unit linked?

These are important questions to ascertain, as some endowment providers are better that others at investment returns.

If the policies are unit linked and linked to shares, do ensure that the funds are transferred to safe funds well before maturity as a stock market crash just before your policies mature could wipe out between 25%-50% of your fund value and you could end up with a massive shortfall.

You can choose to ovepay any part of your mortgage, but do tell your lender that you want to overpay on the interest only part of the mortgage.

JoeK

jamesd

With a 4.69% mortgage interest rate you can do better by putting the money in either cash ISAs paying more than that or any saving account paying at least 5.87% if you're a basic rate tax payer. Would need 7.82% for a higher rate tax payer. When the fixed rate ends and you consider remortgaging you can use the accumulated savings to pay off part of the mortgage if the new mortgage interest rate is higher than savings rates.

While savings rates exceed your mortgage interest rate the most efficient route is saving rather than paying off the mortgage.

Or use investing if it's for the longer term part of the mortgage and you're comfortable using say a selection of funds in an ISA or outside an ISA.

Each of these routes will mean you pay more mortgage interest but you receive still more savings interest, making you better off than paying off part of the mortgage.

JoeK made good suggestions about the endowments. It's not possible to say what you can really expect without knowing the companies and investments in use. For example, it's common for projections not to include with profits terminal bonuses and for terminal bonuses to be a large portion of the final return: 20% to 50% and even higher portions of the sum assured.

Dex58

Thank, endowment providers are:
Standard life (matures 2012) and prudential (matures 2017) both are with profits policies.

JoeK wrote: »

Who are the endowment providers?

Are they with profits or unit linked?

These are important questions to ascertain, as some endowment providers are better that others at investment returns.

If the policies are unit linked and linked to shares, do ensure that the funds are transferred to safe funds well before maturity as a stock market crash just before your policies mature could wipe out between 25%-50% of your fund value and you could end up with a massive shortfall.

You can choose to ovepay any part of your mortgage, but do tell your lender that you want to overpay on the interest only part of the mortgage.

JoeK

dunstonh

What are the projection figures?
what are the surrender values?
what are the basic sum assured?
what is the target amount?
what are the current annual bonuses added?
what is the terminal bonus currently accrued?
what is the mortgage promise value (estimate) in the case of SL?
What is the cost of replacement life cover?
Is it a scot amicable policy or original prudential plan?