Friends Provident Endowment. To cash in or not?

Starsgazer

This is my first post so here goes.
I have a with profits policy with Friends Prov which is due to mature in Jan 2014. My fixed term period on my mortgage with YBS has just finished and I'm seriously considering cashing the endowment in to pay off a big chunk of the mortgage before entering into any other deals.Best fixed rate 6.39% for 2 years so far with YBS.
My outstanding mortgage is split £11,600 interest only and £13,250 Capital Repayment.Total £24,850.

Endowment details as follows:
Target amount £43,750
Guarenteed Amount for bonuses £15,182
Declared Bonuses £7387
Min Guarenteed £22,569
Monthly Payments £65

FP offer £17,971 to cash in.
Best offer to sell on so far £19,400

Projections by FP
4% pa £27,300
5.5% pa £29,700
8% pa £34,000

Any advice gratefully received.

maninthestreet

The performance of FP with profilts endowment policies is pants - I've got one. From your figures, you will be left with an outstanding mortage of only
£6879 if your FP cash in value is used to reduce your mortgage, or only £5450 if you managed to to sell it. I'm not sure if any lenders will be interested in re-mortgaging such a small amount (not much profit for them to make), and if there are any arrangements fees they could potentially be a significant portion of the mortgage amount. You may be better off in the long run just getting a personal loan, and use the £65 per month that was being paid in the FP endowment as part-payment for the loan repayments.

Starsgazer

Thanks for the post. Your confirming my initial thoughts as the amount I'll be paying on premiums over the outstanding period when added to the interest being paid would it would seem require the endowment performance to go into double figures to be worthwhile. Can't see this happening....
I'm also considering seeing what the policy may achieve at auction and setting the reserve at the best offer with an allowance for fees but need to look into this a little more to check for the potential pitfalls

EdInvestor

What interest rates are you paying on the 2 existing mortgages?

Because the mortgages are small the likely sensible approach will be to sell the policy, pay off the repayment mortgage entirely and then throw all the remaining lump sum plus both mortgage payments and the endowment premium) at the I/O mortgage. These overpayments should kill it off very fast.:)

Starsgazer

Thanks for that Ed.
Both the cap and i/o mortgages are with the Yorkshire BS. As fixed term period just finished this month both have reverted to the svr of 7.65%. The best the YBS can offer is 6.39% on a fixed which I'm considering for 2 years on any balance or maybe a tracker. Interested on the thinking to hit the Cap element before the I/O?

EdInvestor

Starsgazer wrote: »

FP offer £17,971 to cash in.
Best offer to sell on so far £19,400

Projections by FP
4% pa £27,300
5.5% pa £29,700
8% pa £34,000

FP policies are likely to make a return in the 4.0-4.5% range.

If you surrendered the policy and used the lump sum to reduce the size of the loans @6.39% also incrasing the mortgage payment by the amount of the endowment premium to maturity, then your return would be 31,743.

Using the sale proceeds , the return would be 33,815.

Both these figures are well ahead of the FP estimates and of course the return is guaranteed, not risk based as with the endowment.So I would sell the policy.

Getting rid of the repayment mortgage and then overpaying the I/O part is a matter of flexibility. If something goes wrong you can revert to paying the interest only. it also lends itself to an offset arrangement which some people like.

Flaxibility is always good to have in these 'interesting times'.:(