Endowment (with shortfall) ending 12 months before mortgage - advice

Prycop

We have a 25 year initial endwoment mortgage, with another one added later for a house move over 18 years - both ending in February 2017.

For some reason that I can't fathom, one of the endowments for the mortgages ends a year early in February 2016 - we predict a £12,000 shortfall on this endowment.

Before I call Aviva (!) to see what the options are, has any one any advice on our best move?

Do we;

• Take the endowment and put it in a bank for a year
• Take the endowment and pay off that chunk of the mortgage - leaving a shortfall for 12 months before paying that off
• Talk to Aviva and leave the endowment with them for another 12 months hoping for growth to reduce the shortfall.

Thanks for any tips.

Goldiegirl

The endowment policy was set up to mature on a certain date, so it's unlikely they'd let it run for another year, so the payout will almost certainly happen in February 2016 regardless.

One thing to consider, is the policy assigned or deposited with the lender.

If this is the case, the funds would be paid to the lender anyway.

If the funds are paid to you, you can decide whether to pay the funds to the lender in Feb 2016, or the following year.

If it was me, I'd look at the rate of interest being charged on the mortgage. If I could get a better savings rate for a year, I'd save the money. If the savings rate is lower than the mortgage rate, I'd pay it to the mortgage.

Prycop

Goldiegirl wrote: »

The endowment policy was set up to mature on a certain date, so it's unlikely they'd let it run for another year, so the payout will almost certainly happen in February 2016 regardless.

One thing to consider, is the policy assigned or deposited with the lender.

If this is the case, the funds would be paid to the lender anyway.

If the funds are paid to you, you can decide whether to pay the funds to the lender in Feb 2016, or the following year.

If it was me, I'd look at the rate of interest being charged on the mortgage. If I could get a better savings rate for a year, I'd save the money. If the savings rate is lower than the mortgage rate, I'd pay it to the mortgage.

Thank you - you've pointed out a few things that make it obvious that contacting Aviva is the best bet as a first step anyway.

dunstonh

For some reason that I can't fathom, one of the endowments for the mortgages ends a year early in February 2016 - we predict a £12,000 shortfall on this endowment.

Endowments mature on a fixed date. When people remortgage over the years, the date of the mortgage changes. The best advice is to keep the endowment maturing before the mortgage. So, that appears to be consistent with what has happened here.

Take the endowment and put it in a bank for a year
Take the endowment and pay off that chunk of the mortgage - leaving a shortfall for 12 months before paying that off

Whichever is best of these two. i.e. can you get savings rates better than the mortgage or not.

Talk to Aviva and leave the endowment with them for another 12 months hoping for growth to reduce the shortfall.

That is not possible with an endowment as it would break the qualifying rules.

magpiecottage

Rule thumb in this situation.

1) Take the endowment maturity value and use it to reduce the loan amount.

This will reduce the amount of interest you pay.

2) Keep your payments to the lender the same then the amount of the shortfall each month.

2) As will no longer be paying Aviva, consider increasing the amount you are paying to your lender by an amount equal to the premium you paid for the policy. This will further reduce the outstanding debt.


If this is likely to be insufficient to clear the loan in full by the time it is due to end, speak to your lender now about your plans.

Before doing this, though, check with your lender that there are no early repayment penalties. It is unlikely so near to the end of the term but it can happen - particularly if you are on a fixed or discounted interest rate.

Prycop

Thnk you for the advice.