Advice on cashing in endowment to pay into mortgage

eamonn321

I did post this on the mortgage forum but perhaps this is the best place for me to post.

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.

StartingAgainKayla70

Hi,

Sorry I have no advice but I too am in a similar situation, so I would also be very interested in what replies you get.:D

Dithering_Dad

Has the endowment company given you a projection of how much it would be worth when it matures? I'm not sure if they also include the Terminal Bonus in these figures, so they're usually worth more than the projections.

I would obtain a maturity projection and then work out if you could get a better return by cashing in your endowment and paying the premiums elsewhere than you'd get from leaving it alone. You also need to check if there are any early redemption penalties.

I was in the same position as yourself and found that even if my Standard Life endowment reached the 'highest return' on their projections, I'd still have a shortfall. When I worked out the interest saved on the mortgage by cashing in the endowment and paying this AND the £66.12 endowment premium straight onto the mortgage, I realised I wouldn't have a shortfall anymore.

nb. My calculations also included arranging life assurance to replace the one provided by the endowment.

eamonn321

On the last projection it was calculated that my endowment policy would hit its target of £41,000 if growth continued at a rate of 6%. Not sure how likely that is. That would cost me over £15,000 in continued monthly payments. Of course I would also still be paying the mortgage each month too (£400 pm although this includes overpayments).

Dithering_Dad

I suppose you then have to ask yourself if the endowment will return 6% and what your mortgage rate is currently and what you guess it will be in the future. If you believe the returns from the endowment are less than what you're paying in interest on your mortgage, then it's a "no brainer".

My view in your situation would be that I took out an endowment purely to pay off my mortgage and if you cash in your endowment now, allied with your offset savings, you could pay off your mortgage today. You could then put the monthly premiums you would have paid into the endowment and the monthly mortgage repayments into an ISA probably and get much better returns than the endowment would give you.

setmefree2

Hi

I have no advice about your personal circumstances but this is how I made my decision. We had 2 endowment policies. I checked out if they anyone would buy them off us. One had resale value and one didn't - so cashed in the one with no resale value and kept the other. My logic was that if someone was prepared to buy our policy it was probably worth keeping, if not it was probably a dud.

Being mortgage free though is soooooooooooo tempting:o

BindiBahji

eamonn321 wrote: »

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?

Regardless of whether or not you decide to surrender your endowment, I would be tempted to leave the cash in your offset savings account rather than pay down the mortgage.

By offsetting you are still reducing the interest you pay on the mortgage, but you retain the flexibility of being able to get at the cash immediately if you suddenly find you need it (no need to apply for a loan or take out a new mortgage).

eamonn321

So are you saying I should leave some mortgage owing? Or are you saying that I should continue to have a lump sum in the offset saving part of the same account? Or both? If I leave, for example, £1000 outstanding on my mortgage plus £1000 saving would that be a good idea?