Paying of the mortgage

louise8383

I have 3 years and 1 month left on my £38,254.00 mortgage. I have not asked for a settlement figure yet but at the moment my endowment will pay out £33,000.00. Do I continue to pay 80.00 a month for 31 months £2,960.00 or cash it in pay that of the mortgage and then the £80.00 overpay on the remainder mortgage.

AnotherJoe

Is there an early repayment charge on the mortgage?
Could you remortgage to a cheaper rate or have you done that already?
Is the endowment unit linked or is there a terminal bonus?
Do you have any other savings?

louise8383

I am not sure if there is a charge i will ask when I call to see what the total final figure will be. If i pay the 33k of and then just overpay on the remainder. I don’t know what a unit link is ?

AnotherJoe

There are (roughly) two types of endowments. One is with profits, which means the amount of money you accumulate goes up gradually and sometimes you get a big lump sum at the end as well as long as you don’t cash it in early.
The other type, unit linked, is directLy tied to the stock market. If the market goes up, so does your savings. If it goes down, so do they. So if your policy is unit linked it might be worth £40k in 3 years time or it might be worth £20k.
It would not be a good idea to cancel the first sort early, since your money is safe and you lose out on the bonus, the second sort it might be worth it.

You need to know if there is a ERC on the mortgage, no point paying off a big chunk and being charged an extra £3k say for the privilege.

louise8383

I have spoken to the mortgage people and there is only a charge of £40.00. The endowment is the first one you mentioned and not the link one. The bonus I would get is a maximum of £2,400. In 3 years time

AnotherJoe

In that case, here some rough maths.
You owe £40k, I guess your mortgage is at 2%, so you are paying £800 a year in interest.
If you paid off your mortgage now you’d save £2,400 in interest over 3 years.
That would cancel out the £2,400 you might get as a bonus in 3 years time but wouldn’t if you cashed it in now.
So really it makes no difference on that basis, in which case it’s clear what you should do, cash it in now and pay the £80 a month into your pension where it will pay back much more money in the long term.
With one proviso, don’t you have any additional cash to pay off the rest immediately ? If not you should focus on building up such an emergency fund.