Keep the endowment or pay off the loan?

Charley_Farley

Although my endowment is doing better than it was a couple of years ago, it still costs me over £80 a month. According to my last statement its worth about £9000 now which would pay off a loan that is costing me £75 a month - although I wouldn't then have the lump sum in about 12 years time and I guess I'd have to change the part of the mortgage that it indemnifies. Money is tight, and I really don't know whether to go for short term relief (if you pardon the expression!) or stick it out with long term misery in the hope that I live to see the rewards Any thoughts?

dunstonh

Tell us about the endowment. You could have a good one. You could have a bad one.

Charley_Farley

:think: It was originally with Black Horse but now Scottish Widows. Started end of 1996 providing cover of £38,800. As of May this year the fund value was £8603.21. I've changed mortgages a couple of times since I took it out, and think it only covers a small part of the mortgage now, if any.

dunstonh

I used to work for BHFS so know about these policies well. I did a few myself on the old target growth rate of 4.4%. They have turned out to be good performers. the old BHL range of funds is not bad. Its not great but the endowments do have lower charges later in life and with a good fund spread you can do quite well. The potential to hit target is there but I would expect the projections to show a shortfall as most BHL endowments had a target growth rate of between 6 and 7%. If you have a 7% target growth rate and the projection uses 6% now, then you would get a shortfall on the projections even if the endowment is above track.

Find out the current value and the surrender value. The difference in those two is going to be your cost. That effectively (and the loss of life cover) is what you will pay to get out of the contract.

Charley_Farley

Thanks for the info dunstonh - much appreciated. Scottish Widows don't include a forecast like BHFS used to, but given the life cover etc, I guess it makes sense to find other ways of reducing the loan a bit quicker.

JoeK_3

You should find out which fund the money is currently invested in, the past performance figures for this and any other funds that are available to switch into.

Once you have all this information available, you can then start to make an informed decision.

JoeK

EdInvestor

PLease post the following info:

Surrender value
monthly payment
maturity forecast
maturity date
Interest rate payable on mortgage.

Then we can take a view.

Charley_Farley

The surrender value as of May 2007 is £8603.21; monthly payment is £80.76; don't know what the maturity forecast is as they don't give me one any more and couldn't get hold of anyone today to find out; maturity date is december 2021. The majority of the mortgage is a fixed rate 4.64% for another two years but the endowment covers £25,000 of the mortgage on interest only.

jamesd

What is the name of the fund or funds that the money is invested in? Your statement should show this. It's probably one or more from the Scottish Widows (Ex Lloyds TSB Ins) list linked from this list.

One thing is clear already: paying off a mortgage at 4.64% by selling the policy isn't going to make sense. It'll be a question of whether to switch to different investments and how much to invest each month to reach your target. If the other part of the mortgae is at a higher rate there's a chance that paying off some of that one might make sense, but that's also not likely.

JoeK_3

Thanks jamesd but I really don't mind being ignored.

JoeK

Charley_Farley

Sorry, I didn't mean to ignore anyone but am floundering a bit now. There's no information on the statements I get that tells me anything about where the fund is invested, and I didn't have much luck trying to get through to anyone at SW on the phone.
Having read all of Martin's posts and advice about paying off stuff before saving, I just wondered whether paying into an endowment in the hope that it will pay off some of my mortgage when I'm 70 is better than cashing it in now and paying off a loan which is costing me £70 a month. By my simple reckoning that would save me £70 + £80.76 for the endowment, less whatever extra I have to pay on the bit of the mortgage secured by the endowment. (I think:o )