endowment / mortgage

old_bear

we have a £28000 mortgage,it is at a fixed rate of 4.7% untill oct 07 then it will go on a standard rate.
we pay as much as possible every month upto 4 times the basic amount to pay it off ASAP.
We also have 2 independant endowment policies that are not linked to the mortgage, they have 8 years to run. if we cash both policies in they are worth approx £16000.
We also have some shares worth about £2000, plus some savings of about £2000, all this amounts to about £20,000 should we cash all this in and pay it off the mortgage ? my wife MAY have to finish work soon due to ill health. her wage will be halved if she finishes work, but she will be given a lump some (tax free) if she leaves off approx £45000.
We are thinking it would be better to pay off mortgage asap and bank the lump sum if it happens. ps . both endowments are not achieving thier targets.

please help

JoeK_3

Please advise what the endowments cover. i.e Death, Crtical Illness etc.

Please post individual endowment details including maturity projections, etc.

What rate of interest are you currently paying on your mortgage?

With your wife retiring due to ill health, will you need to claim on the benefits attached to the endowment policies? It might be worth checking.

JoeK

old_bear

endowments only cover on death on one of the persons.
endowment no 1 minimum amount they will pay at maturity is £13,750
endowment no 2 it says might be worth £15,500 low rate. £17,500 high rate.
mortgage rate is fixed at 4.7% untill october this year we go on standard rate or try to move to another lender

JoeK_3

Who are the endowment providers for 1 & 2 and are they with profits or unit linked?

JoeK

old_bear

both policies are with standard life. one is an endowment the other is a versatile investment plan, this one has profits fund ,the endowment has a bonus

thanks

JoeK_3

You could investigate selling your endowments on the Traded Endowment Market. See www.tepexchange.com

JoeK

dunstonh

If with profits, do the projections include terminal bonus and mortgage promise values (where applicable)? - most dont

what are the projection rates used? (there is variety in the rates used)
How do the projection rates compare to the real performance? (the projections often understate as well as overstate the real potential of the endowments)

edit: posted as I was responding.
Standard Life do not include the mortgage promise values or terminal bonus accrued to date in their projections. So, the projections are likely to heavily understate the likely maturity value.

old_bear

the profits bonus fund on the investment plan are 3% a year
the projected rates are low ,intermediate and high

on the endowment the bonus this year are £48 and the projected rates are 3.75%,5.50%,7.25% and a target amount

dunstonh

What is the terminal bonus currently accrued?
what is the mortgage promise value maximum?

old_bear

on the edowment plan the target is £33000 the minimum they will pay is £13700 the value now is £8300
on the investment plan . it says it should make at least £15500 or might be £17500 these are not promised values current value is £8400

EdInvestor

Old bear

if you could just post the info in this format it would be very helpful

Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
maturity forecasts


It's quite possible it will be sensible to surrender the endowments, but in your case with some possible instability ahead, I'd be inclined to suggest that you consider an offset mortgage in October, using the cash from the endowments plus some of your wife's money to cover the 28k.

This would mean you would have no more mortgage or endowment payments to make thus easing the possible strain on your cashflow with only one full salary - and of course you would be getting a tax free return on your savings equivalent to the mortgage rate (6%+ probably).

You can of course use the offset cash to pay off the loan any time, but equally you can dip into the money if you need it: this flexibility can come in very handy at times of uncertainty.

One issue when ill health is involved is life cover.If you did surrender the endowment(s) would you be able to replace your wife's life insurance at reasonable cost? In some cases that might not matter because people have other life cover or don't need it, but if you need to replace it and the cost is very high this may make the endowment more valuable than it would otherwise be and thus worth keeping.