Thinking of cashing in Endowment - Advice?

astralbee

Here's my situation - I've pretty much already decided what I want to do, but I'm hoping some people can tell me the best way to go about it and perhaps help avoid any pitfalls.

7 years ago I bought a small flat for £32,000 and on advice got an endowment mortgage over 25 years.

8 months ago I moved to a house which is costing a whole lot more and I need to bring down my outgoings in order to live!

When I bought the new house I took out a mortgage of £80,000 over 32 years (to keep the payment right down). It's a repayment mortage BUT I kept £32,000 of it as interest only and still have my endowment which matures in 18 years. It is projected to pay out around £46,000 which sounds great but I can't wait that long because I want to start a family and need to live NOW.

Under my current mortgage terms I am allowed to pay off 10% of the balance each year without penalty, so I am thinking of cashing in the endowment now and injecting it into the mortgage. Prudential have quoted me £6500. I have worked out that if I use this money to pay off a small credit card debt and throw the rest into my mortage, converting the balance to a repayment mortgage, it brings down my monthly payments by about £120 a month. It seems like a no brainer but I want to get the best deal.

Is there any way I can get more from the endowment than what Prudential have quoted me? It seems like even after 7 years there is no profit from what I paid into it. I have heard there are companies that buy them.

Is there anything else I should be wary of?

Thanks in advance,

Darrell :rotfl:

dunstonh

Is there any way I can get more from the endowment than what Prudential have quoted me?

You could attempt to sell it. Prudential policies are in good demand as they have never failed to hit target and dont expect any shortfalls. Their average surplus has been increasing for the last 4 years.

It seems like even after 7 years there is no profit from what I paid into it.

There wouldnt be. The break even point on a good one is typically around year 10.

Is there anything else I should be wary of?

You will be losing the benefit of your life cover and passing on the benefits of a good endowment onto someone else.

astralbee

dunstonh wrote: »

You could attempt to sell it. Prudential policies are in good demand as they have never failed to hit target and dont expect any shortfalls. Their average surplus has been increasing for the last 4 years.

That is good to know, thank you. I heard I could get more selling it, but I don't know how. A friend told me there was an article on this site but I couldnt find it hence this post.

An article on BBC's website suggested contacting the APMM as some kind of regulating body over the sale of policies. Is that right? Can the companies be trusted and do they charge?

Darrell

EdInvestor

https://www.apmm.org is the trade association of the TEP companies. Fill in the form on the site and you can get quotes from a number of traders, no charge, quite reputable.

hearts

Personally I would keep the endowment and change the whole mortgage to Interest only.

dunstonh

Personally, so would I. Endowment mortgages are usually cheaper than repayment (that was the most common reason people did them originally) so there is one gain and the Pru endowment is likely (as much as you can that) to hit target so its not one to be concerned about. Any amount above the target amount can be kept on repayment basis.

I'm surprised the mortgage adviser you used didnt present this as a solution as it is the most logical one.

astralbee

dunstonh wrote: »

Endowment mortgages are usually cheaper than repayment (that was the most common reason people did them originally) so there is one gain and the Pru endowment is likely (as much as you can that) to hit target so its not one to be concerned about. Any amount above the target amount can be kept on repayment basis.

I'm surprised the mortgage adviser you used didnt present this as a solution as it is the most logical one.

The mortgage adviser I used gave me the option, and I chose to go repayment because after selling my first property I was kind of sad that after 7 years I still owed the full amount I borrowed. Yes I know that endowments are a long term investment but I don't want my kids have a poor childhood only for me to reap the benefits when they are about to leave home. Cashing in the endowment to inject into the mortgage feels the same as if I had been repayment from the very start.

With the interest rates going up, surely I want to be paying LESS interest - so doesnt bringing down the amount owed and not paying only interest every month make long term sense too?

Darrell

dunstonh

With the interest rates going up, surely I want to be paying LESS interest - so doesnt bringing down the amount owed and not paying only interest every month make long term sense too?

Not if the endowment is performing better than the interest being paid. As its Pru, that is very likely the case.

If you just look at that chunk relating to the endowment, the monthly payments on interest only plus endowment should be lower than a repayment mortgage plus life cover. You mentioned you wanted to reduce costs and that is the most efficient cost reduction here.

Had it been a naff endowment, then your choice would be correct. However, its Pru and that probably sees you heading towards a surplus.

cm233lh

18 years is a long time. I was sold a Standard Life endowment 18 years ago on the basis that they were a good company and never been know to post a shortfall. In fact they topped the best payers over the previous umpteen years. No one could have predicted what happened in the last 10 years to endowment policies and no one can predict whether it will or won't happen again. An endowment mortgage is effectively a risky investment made with borrowed money that is secured on your home. You can do that if you want - it all depends on your attitude to risk.

Breize

Am I being dim but how does converting the whole mortgage to interest only help when in upteen years he would have to find the cash to repay the capital sum he borrowed? He would have to trust an endowment or savings plan of some kind to amass the 48grand he owes once the 32K endowment is applied?

Have I missed where anyone has said how he repays the capital?

getmore4less

One way to think of this is to seperate the debt from the savings.

The base cost for renting the money is the interest.

If you go repayment you invest in equity in the house,
With the endowment you invest in that policy to buy the equity in the future.

Bottom line is the endowment a better investement than the repayment taking into account some life cover.

If you want to reduce costs the minimum is interest only on the lot and no savings vehicle so that the reduction in the mortgage and the cuurent endowment payment.

The debt does get inflated away over time at the cost of paying interest but if you need money now to have kids then you take the hit of bigger payments in the future or having to sell. You need to pay off the debt some how so just need a plan as to when that date will be and how you are going to do it, the date can be beyond the current mortgage date but normaly no later than retirement, but you also need to plan for that as well.

Looks to me like you may have overstetched.