Another 'should I cash in my endowment?' thread.

InMyDreams

In brief, we have the ‘managed life fund’ here.

So, any thoughts? Would you cash it in? And if so, then do what with it?

Many thanks.
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More detail and the story so far (sorry it's so long)…

In Oct ’00 we bought our first house and regrettably took out an endowment mortgage. I am furious at myself for my own naivety. (I didn’t realise the endowment was a completely separate product to the mortgage. I was aware that the in-house Countrywide Assured mortgage advisor I was dealing with was looking at the whole of the market to get us the best mortgage deal. I thought the endowment was part of that mortgage deal with whatever mortgage company we ended up with. Didn’t even realise the guy was simply palming off one of his own endowments which would have been the same whatever mortgage we went for, or that we even had a choice! :mad: Anyway, I only blame myself, I’ve learnt much since then and I’m digressing...)

In Jan ’03 we bought our next (current) house and this time used an independent mortgage advisor who was wonderful. We took out the new mortgage without taking into account the endowment at all. By then we had paid shed-loads into it (~£185/month) and it was worth practically nothing anyway due to extortionate fees and poor performance (like all endowments at that time). We knew we had to make a decision about what to do with it now that it was essentially just a savings pot (albeit almost empty :eek: ) and nothing specifically to do with paying off our mortgage. By then we were aware that it had been a terrible mistake, but having paid all those fees, were we shooting ourselves in the foot by bailing out at that point or were we simply going to be throwing good money after bad if we didn’t?

For various reasons we procrastinated for the next few months, not making any decisions and still paying the high premiums, hoping performance would improve.

By Aug ’03 we finally got our act together. The realisation that from our premiums we were still paying yet more fees, commissions AND life insurance that we no longer needed as we had taken out new policies when we took out the new mortgage was a kick in the butt. :eek: Yet more lessons.

But we decided to delay the ‘surrender or not’ decision for even longer by reducing premiums to £15, wiping out all the insurances we could and monitoring the progress as by now the endowment seemed to be recovering, despite the ludicrous cut of our premiums we had been essentially throwing away on unnecessary insurance. On this day we were given a surrender value of £3853.66 (having paid in £6274.36 to that date, not that that’s relevant). Since then we’ve continued to pay in £15/month (which is only worth £14.25 because of the higher ‘buy’ price and then there’s a £2.80 charge on top!) but the surrender value now lies in the region of £6450 (having now paid in £6949.36 to date). By my calculations, had we cashed in the endowment in Aug ’03 and put it and all future £15 contributions into a savings account, it would have to have paid an AER of over 10% to be worth what it is today.

So, whilst it has clearly beaten savings accounts since then (and our mortgage rate by a long way) I still don’t have a clue about where this endowment lies on a risk scale or what sort of return I should be expecting/hoping for over a longer term. I’m obviously glad now that I didn’t cash it in in ’03 and take a lump of the mortgage (which is what we nearly did) but this is a small consolation really. I am tempted to cash it in now and put the whole lot into an index tracker ISA which I assume is less risky (or at least no more risky and *much* cheaper). I am assuming we couldn’t sell this policy for any more than it’s surrender value as it’s not a ‘with profits’ policy, although it does pay bonuses at 5 (which we had), 10, 15, 20 and 25 years.

So, what would you do? I’m not totally risk-averse. Our current mortgage is mostly IO (and next time we change I will switch to totally IO) and we pay the difference into high interest cash savings accounts in my name (currently non-taxpayer) and cash ISAs in hubby’s name. In my own head (and book-keeping) the cash savings and endowment are essentially a DIY offset mortgage, and as long as the cash part can always bring us back on track, I’m happy to take more risk with the excess. I’m just worried that currently the endowment is a very expensive way of doing this, but I’m still on a steep learning curve and haven’t yet really delved into the world of investing. Don’t want to make any more expensive mistakes!

Thanks for reading if you got this far!