Should I surrender the endownment (please advise & check my math)

tomasch

The endownment matures in 54 months for a value of 45000 GBP. The current surrender value is just over 31000. I just had an amber alert in July about it potentially returning less than originally intended.

Current monthly premiums are 180 GBP, that that will be 180*54 =~ 10k. Current mortgage interest rate is 2.5% APR, and is expected to rise over the coming years.

I figured to work out the cash value of the endowment, I could do 45000 discounted by 2.5 APR over 4.5 years (so 0.206% each 54 months assuming interest rates stay the same). That brings the present value of the endownment to 40267 for interest on mortgage. I then knocked off the 180*54 (monthly contributions to the plan), which brings the present value of the endowment to just over 30k -slightly less of the cash in value.

So my calculation 45000/(1+0.00206)^54 - (54*180) ~= 30,500

If my calculations are correct (and please do verify), then should the endowment be sold now (note this is a slightly conservative estimate as interest rates are likely to increase). What do you think of my math. Should I discount the future value of the endowment by the interest rate on the mortgage What else do I need to consider?

Thanks
Tomasch

TrickyDicky101

Hi

I think you should future value the surrender value now and future value the stream of premiums you will pay for the next 54 months and compare that to the target maturity value.

Assuming a nominal rate of 2.5% (not APR) compounded monthly this then works out as:

FV of surrender value = 31000*(1+2.5%/12)^54
= 34,687
FV of premiums = 180*((1+2.5%/12)^54-1)/(2.5%/12)
= 10,276

Total FV of encashment now and paying off mortgage and also paying premiums against mortgage
= 34,687 + 10,276
=44,963

Then I would compare that against your projected maturity value.

Assuming interest rates remain where they are, £44,963 is the minimum future value. That would seem to me to compare favourably against an uncertain maturity value that you are in possession of warnings for.

Note that you would lose any life insurance associated with the endowment should you cash it in.

dunstonh

Is there a mortgage endowment promise value with this provider?

tomasch

TrickyDicky101 wrote: »

Hi

I think you should future value the surrender value now and future value the stream of premiums you will pay for the next 54 months and compare that to the target maturity value.

Assuming a nominal rate of 2.5% (not APR) compounded monthly this then works out as:

FV of surrender value = 31000*(1+2.5%/12)^54
= 34,687
FV of premiums = 180*((1+2.5%/12)^54-1)/(2.5%/12)
= 10,276

Total FV of encashment now and paying off mortgage and also paying premiums against mortgage
= 34,687 + 10,276
=44,963

Then I would compare that against your projected maturity value.

Assuming interest rates remain where they are, £44,963 is the minimum future value. That would seem to me to compare favourably against an uncertain maturity value that you are in possession of warnings for.

Note that you would lose any life insurance associated with the endowment should you cash it in.

Nice way thinking about it TrickyDicky101. Isn't it effectively the same I did, but in reverse (though I didn't discount the monthly premium)? As I understand, the life insurance wasn't all to brilliant, and it'll end in 4.5 years.

@dunstonh. Thanks. I will check into the promise value. I'm guessing that that is a guaranteed amount, no matter what, correct? Provider is Zurich Assurance for any readers wondering.

Life insurance aside, can I feel I made a rational choice surrendering the endowment? There's a chance the market might do well in the next few years, but the plan was for 45k coming in. I feel interest rates are very likely to rise in the next few years though.

As mentioned, the amber warning has come through - do I have any grounds for complaint? If I do wait for a red letter before I complain, is it likely the cash value will go down?

dunstonh

I dont believe Zurich had any MEP.

TrickyDicky101

tomasch wrote: »

Nice way thinking about it TrickyDicky101. Isn't it effectively the same I did, but in reverse (though I didn't discount the monthly premium)? As I understand, the life insurance wasn't all to brilliant, and it'll end in 4.5 years.

It's not strictly the same as the minimum future value I calculated is guaranteed (there's no risk or chance it will not make this assuming the mortgage remains at least 2.5% pa).

If you discount the target sum assured of £45k you are taking an uncertain outcome (that may or may not be £45k when it matures) so you have inherent uncertainty built in from the go.

tomasch

Good point about your calculation. I've read about selling the endowment to a third party. Apparently you can squeeze a bit more cash this way, though not all endownments can be sold. Does anybody know if this is still easily done? Are apmm and surrendalink reputable companies?

I'm going to either sell or surrender this endowment? As I said, I've just received an amber warning letter. Is there anything else I can do to squeeze more money out of this rubbish endowment? Would complaining with an amber letter likely get me anymore cash?

Thanks