Cash endowment to create overpayment?

Lu_T

Hi all, we'd be grateful of your advice.

We already overpay our mortgage and are pleased with our progress. We are looking at other ways of getting money to make overpayments and have an endowment which we've kept from our previous house.

The endowment costs us £60/mth and will pay out the year our daughter is 18 (17 years to go!) so up to now we've seen it as her university fund.

My question is this, should we cash the endowment now (knowing it's likely we won't get out what we've put in) and use the money to overpay our mortgage?

The basic figures are:

mortgage £115,000 taken out in 2004
current overpayment £100 - makes payments c.£805/mth
endowment payment £60 for 8 years (so far)

We've been making this £100 overpayment for about a year and have knocked c4 yrs off the term in this time - which is fab!

We could also use the lumpsum from the endowment to make a one-off payment off the mortgage. Sorry I don't have a redemption figure right now - let me know if this is material to any advice.

L

Retired_I.F.A.

It only makes sense to pay extra on a mortgage if your savings yield a lower rate than the rate charged on mortgage. History shows us that over the long term an endowment investment yield rate has way outperform a mortgage charge rate. Of course there are some years when this is not true albeit only the over the past 5 or so with maturing low cost endowments but for the future no one knows.
The option to surrender or sell the endowment is yours do so if your going to invest it in something more tax efficent such as the most efficent of them all, a pension plan yes, or to pay off a loan or credit card charging a very high rate but to pay off the cheapest loan your ever likely to get, the mortgage, well maybe if your so very very sceptical about the future.

BTW, Theres one B.S. advertising on tv of late paying 12% p/a, far better than the rate your repaying at on your mortgage i'm sure.

EdInvestor

We need some more info to make a comparison

Endowment provider
Guaranteed sum assured
Declared bonuses
Surrender value
Maturity date
Maturity forecasts
Endowment premium
Interest rate on mortgage

Retired_I.F.A.

No you dont your just bloody nosey

Lu_T

Thanks for your advice. The point about endowments yielding a higher return than we are paying out on interest on the mortgage seems to make sense. We are due a review with our IFA in the next couple of months and we'll be raising this issue, but I wanted to tap into the collective wisdom of MSE beforehand.

For Ed's benefit, broadly the figures are:

Zurich
£31,750
No idea on bonuses, surrender value or forecasts (other than they keep sending us 'amber' letters)
As I said, premium is c£60, maturity date is 17 years from now, Nov 2024

Mortgage interest rate is 5.5% (due to end in March 09)

EdInvestor

Hello Lu T

You'll need to ring them up for the S/V and forecasts, bump up the thread when you've posted them and I'll get back to you.

Crazy_Saver

Retired_I.F.A. wrote: »

BTW, Theres one B.S. advertising on tv of late paying 12% p/a, far better than the rate your repaying at on your mortgage i'm sure.

Who's that then Retired I.F.A. ?

I'm have just written a £10k cheque to overpay my mortgage but this could change my mind!!!

Crazy Saver

Retired_I.F.A.

I've been waiting to see the advert again myself as I was not sure who it was. Then as I started to type this post intent on saying I'll post again when I next see it, Alliance and Leicester came to mind and google to the rescue...
http://www.alliance-leicester.co.uk/savings/index.asp?page=prs3

Well it was obviously a loss leader, but I dont remember the TV add saying anyhing about the other compulsory account needed.

Crazy_Saver

Nice idea Retired I.F.A but it looks like the maximum investment amout PA is £3000 which at 12% is about £360 return pa I think.

My current mortgage rate is 5.94% which I assume works out to roughly half of the above making a difference of about £15 pcm.

Thanks for the info though.

(sorry if the figures are a bit iffy, I'm doing them in my head out of laziness)
Regards

Crazy Saver