Mortgage/Endowment advice please?

EssJay1

First time “poster” on this forum.
Looking for some advice please.
My wife and I are both 52 this year.
Current Mortgage: £88K, of which £75K is interest only.
Endowment Policies current value (at Feb ’13): £33K. (Equals a shortfall of £42K).
Two policies, currently costing about £25 per month.
Current mortgage payment per month: £438.
Plus, we have been overpaying by another £415 per month since March 2012.
We have a draw-back capability, having overpaid a total of £29K to date.
Term: Due to complete May 2019 (5 years).
We have access to savings of approx. £12K. (Currently ISA’s).
Questions: (Options 1 to 3, as provided by our lender Nationwide). Should we:

• Convert to a full repayment over the same 5 year term. This would stretch payments to an uncomfortable £1,500 p/month?
  
• Extend to a 15 year term and convert to repayment. This would mean monthly payments of £570?
  
• Extend to a 10 year term and convert to repayment. This would mean monthly payments of £810?
  
  Or, should we consider converting the endowment shortfall only (£42k) to repayment and leave the outstanding interest only aspect at £33K, knowing that the policies will definitely pay this off in 2018 when they mature?
  Should we consider using that draw-back facility on the overpayments we have made, in some effective manner?Should we consider using the savings to reduce the amount more?

Are there any other more beneficial options that we could be considering?
Thank you for any advice in advance.
EssJay1

getmore4less

What rates are these deals against your current rate.

What's the current cash in value for endowment.

EssJay1

Hi getmore4less,
Thanks for the response.
I should have mentioned that the rates currently are the standard variable rate with Nationwide at 2.5%.
I haven't explored the cash in value for the endowments. The two policies were originally taken out to cover £50k, so at current value of £33k, I wouldn't imagine very much?

Imma_Number

Further to getmore4less's questions:

Do your endowments have a Mortgage Endowment Promise (MEP) which only pays out keep paying the endowment to the end? Some do eg Aviva.

Would be be correct to assume the termination date of the endowments is also May 2019?

opinions4u

Is the current value of the endowment (£33k) its surrender value today or its projected maturity value?

Which company is it?

What type of policy is it? (unit linked, with profits etc).

EssJay1

Hi Imma Number - I am not aware of an MEP, but I do have to keep paying for them. The maturity dates for the endowment policies are March and October 2018. The mortgage completes Mid may 2019.


Opinions4u - the £33k is claimed as the "current value" on last Febs yearly statement - so that's the cash in value then rather than the maturity value I guess?
They are with Standard Life and are with profits I believe.

opinions4u

Standard Life have an MEP on most of their with profits endowments. It might be worth asking them about it.

Converting the £42k shortfall to repayment should provide you certainty. In reality, the shortfall is likely to be significantly less than you're currently suggesting.

What's the projected maturity value assuming 4% annual growth?

EssJay1

Hi opinions4u.
The projection of what they might be worth at 3.75% is £40k. Naïve question coming up - What is and what are the benefits, if any, of the MEP?

opinions4u

The MEP will bridge some of the shortfall.

http://www.standardlife.co.uk/1/site/uk/fund-info/with-profits/mep

Cashing out early will cost you any benefit of the MEP.

The more others cash out, the more I suspect it will give you in value!

Thrugelmir

With the policies having not far to maturity. Probably best to retain them.

Keep overpaying by as much as you can afford to, then review the situation in a couple of years time.

The ISA savings should be kept as emergency funds.