Endowment Shortfall - How to Proceed?

GingerBob_3

Some general advice needed:

Mortgage remaining: £62000, completes April 2016
Endowment to cover £30,000 matures next month, £7,000 shortfall.

How to deal with the shortfall:

Options:

Put £7,000 on repayment between July 2014 and April 2016 at 3.99%

Borrow £7,000 over 2 years at 4.7% (not from the mortgage provider).

Also, there's an option to go onto a new fixed rate of 2.89%, but with early repayment fees up to Oct 2016, so to do this would require extending the mortgage for 6 months.

My saving are tied up, so there's no option to pay the shortfall direct from savings.

Any of the above would be affordable to me, so what's the general thinking here? I'm leaning towards borrowing the £7k at 4.7%; Why? Because administratively it's a piece of cake, the interest rate is fixed, and the difference between it and the 3.99% is not a great deal. Also, I would have the option of taking it out over say, 18 months, 2 years, 2.5 years or even 3 years (don't really want to do the latter).

Thanks for any thoughts on this.

silvercar

How is the other £32,000 being covered?

Disadvantage of borrowing £7,000 elsewhere is that you are borrowing it all at the start (ie now) so are paying interest on that amount for the whole time.

Administratively easiest would be to do nothing and start putting money aside to amount to £7,000 by April 2016. 22 months to go, so a touch over £300 into the best savings count you can find that will give you access by April 2016.

Accurately, you would need £318 a month less any savings that money would accrue. Borrowing £7,000 over 22 months at 4.7% would cost £333 a month.

Thrugelmir

Are you guaranteed to obtain an unsecured rate of 4.7%?

GingerBob_3

Thrugelmir wrote: »

Are you guaranteed to obtain an unsecured rate of 4.7%?

Probably. It's what my bank's offering at the moment, but one can never be certain of these things.

I did wonder about your option of "do nothing" and put the money aside but I wasn't sure whether the B/S would insist on the £30.5k in July (the amount covered by the endowment).

The remaining £32,000 is covered up to £30,000 by an endowment, which is currently performing quite well, and £2000 on repayment.

RickyC_IFSWP

GingerBob wrote: »

Probably. It's what my bank's offering at the moment, but one can never be certain of these things.

I did wonder about your option of "do nothing" and put the money aside but I wasn't sure whether the B/S would insist on the £30.5k in July (the amount covered by the endowment).

The remaining £32,000 is covered up to £30,000 by an endowment, which is currently performing quite well, and £2000 on repayment.

Yes the B/S will require the £30.5k due in July.

The loan makes sense because as you rightly mentioned, it should be fairly simple, whereas for £7,000 remortgage, the would be a lot more paperwork and likely have arrangement fees etc. In an ideal world, I'd prefer the whole amount switched to repayment and the endowment maturing in 2016 could be used as a good retirement pot for you.

Annisele

I'm not certain the BS will require the £30.5k in July.

It used to be common for endowments to be 'assigned' to lenders. If yours has been assigned, then the lender will want its money on maturity of the policy. If it hasn't, then you don't have to repay the mortgage until the end of its term.

If you're not sure, ask the policy provider - any assignment will be noted in its records.

GingerBob_3

Annisele wrote: »

I'm not certain the BS will require the £30.5k in July.

It used to be common for endowments to be 'assigned' to lenders. If yours has been assigned, then the lender will want its money on maturity of the policy. If it hasn't, then you don't have to repay the mortgage until the end of its term.

If you're not sure, ask the policy provider - any assignment will be noted in its records.

The endowment is assigned, so I guess the B/S will want the full amount the policy was supporting, including the £7,000 shortfall.

Incidentally, the performance of the endowment has been exceptionally bad. In the last 12 months it's increased in value by only £2,000 (25 year policy, £50 per month) and apparently that includes any terminal bonus (all estimated at this point). My other endowment, a similar product, has performed much better. The provider gave me the opportunity to complain, so I did. I know it's a bit late in the day, and I'm not holding my breath ...