Endowment - 11/99-11/24 - Stick, twist or bust?

stripeyjoe

Hi,
Against our better judgement we took out an endowment with CGU in Nov 99. It was projected to mature at £101000 to cover our interest only mortgage. It includes life, critical illness and something called premium protection. We've tried complaining about mis-selling but no success.
We pay in £234 a month (£48,400 so far). It is currently worth £44,700 with a surrender value of £54,120 (£9400 bonus, they are paying 13% at the moment, up from 9% at the beginning of the year though 9400/44700 = 21%, i guess that's an accumulated bonus).
The last amber letter predicted a return of £66.5 @1.5% and £84.2 @ 4.5% when it matures.
I calculate that, with no growth, from the current £54k it should be worth £75-£80k at term just on our payments in if the bonus stays at the same percentage (£22k of payments to be made).

I'm wondering if I should cash it in (or sell it) whilst the bonus is high and use that money to pay off around 1/2 our mortgage and then use the £233 plus another £250ish a month to clear the rest of the mortgage. I'd lose the life insurance etc but, to be honest, not that fussed about that if we only owe £50k, there's enough equity in the house to be able to sort something out if something bad happened. I've also asked Aviva if we can lose all the 'benefits' for the remainder of the term so our payments go more towards the endowment and less to insurance.
Or, is it now building up bonus as it's toward the end, the % the bonus is compared to the fund value has risen from around 10% in 2013 to 17% last Nov, the last figures (£54k/£44.7k) work out at 21%. I guess that is the effect of the increase from 9 to 13%.

Our mortgage is £100k with a lifelong tracker of base rate + 0.09%, so currently it's 0.34%. We can overpay as much as we want so we are going to start paying in an extra £200 a month anyway. The mortgage runs longer than the endowment, it finishes in July 2026.

Any advice gratefully received!

Thanks,
Joe

ThePants999

0.34%!? Don't pay off a penny of the capital while you're paying such a low interest rate, regardless of what you do with the endowment! Put that £200 a month somewhere paying interest and profit from the difference.

stripeyjoe

Hi,
Thanks for the reply.

I know, we got an absolute bargain with that mortgage deal, it was just before the crash. Cost us around £1000 in upfront fees but has been worth it.
Was thinking that but it's a hassle to start moving money into a savings account and then later move it into the mortgage. Even if we found a regular saver where you can pay in £200 a month it's still going to be no more than 3 or 4%, over a year that's around £30 in interest. Also, is then tempting to use that money for something else!

Cheers,

joe

ThePants999

£200 a month paid into a savings account paying 3%, from now until your mortgage runs out, will earn £4,338 in interest. Using the money to make overpayments on your mortgage instead will save you £452 in interest. If the tiny amount of hassle in opening a savings account and setting up a standing order isn't worth £3,886 to you, then you've come to the wrong site ;-)

Also, 2026 is the sort of timeframe where you should be looking at investments if you're not too risk averse. Get a 6% return and you're earning £9,566.

And we haven't even talked about your endowment payout yet :-)

stripeyjoe

I can see the logic there, as long as the saving rate is higher than the mortgage rate I'm better of saving. In terms of risk, it needs to be pretty much risk free as we will need the money in 9 years to pay the mortgage.
What are your thoughts on keeping or selling/surrendering the endowment? Currently, with the bonus, it's made about 12% in total over what we have paid in. If the stock market tanks again there might not be enough time left for it to recover.
Cheers,
Joe

stripeyjoe

Hi all,
Anyone with advice on keeping or selling our endowment? Do you need more details on the endowment?
Thanks,
Joe

AnotherJoe

stripeyjoe wrote: »

Hi all,
Anyone with advice on keeping or selling our endowment? Do you need more details on the endowment?
Thanks,
Joe

Possibly, such as is there a final bonus, but also , people need a crystal ball

There's also the question of the bundled insurance products. Do you want these ? If so they would likely be much more expensive to buy now due to your increased ages.

stripeyjoe

Hi,
There is a bonus, currently it's at 13%, the annual statement says 'We may also pay a final bonus, but this is not guaranteed, payable on maturity and surrender. The final bonus at the moment is just over £9k on a balance of about £44k, which is about 20%. I guess this is because the total bonus is made up of all the bonuses it has accumulated over the last few years. The original endowment was a CGU 'Homemaker plus', they got bought out by Norwich Union who then became Aviva. It's a with profits one, in the Aviva Unitised With Profit fund
It does come with life & critical illness insurance and something called premium protection. If we were to sell or cash it in I wouldn't bother taking out anymore, my pension include a death benefit of way over what the outstanding mortgage would be. I have asked the endowment people if we could get rid of all the necessary stuff and just have the endowment to see if that would increase its return.
A crystal ball would be good! I guess, with the FTSE making gains then it will be as well though, looking at the Aviva website our fund appears to be the second worse performing over the last 5 years.

Thanks,

Joe

dunstonh

Does it benefit from the mortgage endowment promise? You will need to ask Aviva unless you happen to have your 2001 or 2003 statements.

stripeyjoe

Unfortunately not. The promise was done in 1999 and based on the projected value then. This was just when we took out our endowment and, optimistically, the projection was based on 6% return. So, according to them, it was nailed on to achieve that!
The really galling thing is it has never made anything like that and, before the bonus, is worth less than we have paid in (though we have had the benifit of life and critical illness cover).