Advice on cashing in endowment to pay into mortgage

eamonn321

I currently have £28,500 balance left on my Standard Life Offset mortgage with a lump sum of £10,000 also sitting in that account (potentially then, the balance could be £18,500).

I also have an endowment policy running which was originally set up to pay off my original mortgage for £41,000 due in July 2014. I've spoken to the endowment company today and they say that if I cashed in the policy now, I would get back £20,000. I have paid this policy for 99 months so far, paying a total of £18,740. So cashing in would provide a very poor return for 8 years' worth of payments. However, I have no guarantee that the policy would hit the full target if I continued to pay it until its full term.

So, my question to you is, should I take the £20,000 now, pay it into my mortgage and also use £8,500 from my offset savings to pay off my mortgage in full?

I would then be saving about £600 per month (mortgage and endowment policy repayments).

Your advice gratefully received.

dunstonh

So cashing in would provide a very poor return for 8 years' worth of payments.

No it wouldnt. In that time you have had life cover and paid the charges. To see a surplus in the first 8 years is a good sign. Plus you are working on the surrender value and not the current value. There is probably a penalty there reducing that value. If so, you ought to find out when the surrender value gets reduced/removed. Many have no penalty after 10 years or a much smaller penalty. Plus, you need to be wary of tax as surrender will create a chargeable event on surrender and have a term of less than 10 years which could see you having a tax penalty.

eamonn321

Thanks. Good point about being covered for life insurance for the past 8 years. Don't like the sound of the tax thing though!

dunstonh

The policy qualifies after 10 years and there is no tax to worry about then.

This policy may not be as bad as you think as the good ones tend to break even in years 7-9 (assuming 25 year term).

EdInvestor

Post some more info about the policy

Provider
Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
Maturity projections
Interest rate payable on mortgage

eamonn321

Edinvestor - I don't know what the declared bonuses are but all the other details ar ebelow.

Provider - Sun Life Financial of Canada
Guaranteed sum assured - insured for £41,000
Declared bonuses - ?????
Surrender value - £20,044 (now)
Monthly premium - 189
Maturity date - 01/07/2014
Maturity projections - Last figures provided were £41,000 if it makes 6%
Interest rate payable on mortgage - 7.31%

dunstonh

SLoC plans are often unit linked. That would also explain why you are on track to hit target and possibly surplus.

Is there any mention of units and fund name?

EdInvestor

eamonn321 wrote: »

Maturity projections - Last figures provided were £41,000 if it makes 6%
Interest rate payable on mortgage - 7.31%

If you cashed it in now and used it to pay off your mortgage @ 7.31% also increasing your mortgage payment by the endowment premiums to maturity, then your notional return at the end would be 53,435, which is a whole lot more than the projection.

Is this a 15 year policy? IIRC if it has gone more than half way, no tax would be payable.

eamonn321

I've just spoken to Sun Life and they say that I may be liable to tax on any surplus between what I've paid in and what I get back. So that would be on about £1000. That's if I declare it (which of course I would!). So not a terrible price to pay.

I should also point out that Sun Life paid me compensation of £5300 for mis-selling me this policy and an earlier endowment which recently came in at £1500 under target.

I never thought of paying the Sun Life premiums, after cashing in the endowment, into the mortgage. I'm wondering what to do now. Cashing in and paying 20k into the mortgage leaves 8.5k balance. If I keep paying my current mortgage repayment of £400pm plus my endowment repayment of £189pm (say £600pm) I expect that balance would be paid off fairly quickly. That way I pay off the mortgage in about 15 months without having to use any savings.

m_c_s

eamonn - what tax are you liable for - CGT?
If CGT you have an allowance which is more than £1000.
As pointed out before by others if policy has passed its 50% time mark then you should not be liable for any tax.
Im sure someone with more knowledge than I will come along and confirm or otherwise..