Mortgage, cashing endownment or what??

sebastianj

I am humbled by all the help, thank you all,

Provider's name Allied Dunbar (Zürich)
Surrender value £33K
Maturity forecasts £53K at 6% and 48.5K at 4%

I still have 5 years to go before I retire, and this decision will effect my lifestyle a great deal in the future if because of this I am denied any benefits I am entitled to.

kind regards
seb

EdInvestor

Hi Seb

First of all, assuming that you won't be retireing for 5 years or so and when you do you will have a company pension of 7.5k plus a state pension of around 5k (at least, have you checked the amount yet?), then we can assume that you won't be eligible for any benefits.

Now regarding the endowment:

If you cashed it in, and used the lump sum to reduce the mortgage and increased the mortgage payment by the endowment premium amount, at the maturity date you would get 57,801.

That's a good increase on the forecast of 53k from Zurich, and of course it's guaranteed, which the endowment is not.

So IMH0 you should dump the endowment, pay off the loan and use any spare money to max out your ISA so as to provide additional tax free income when you retire.

sebastianj

hello all again, especially EDInvestur,

I spoke to the Adviser again, who calculated the following,

My occupational pension= £620 Per month (since 2001) I have no other income.
Outgoings= £487 Mortgage
£110 Endowment premium
£200 Bills PM
£150 food etc.
He reckons I am getting deeper in debt due to my flexible mortgage without knowing it.

He says I am now getting £200 pension credit, £100 council tax reduction and may get some interest relief on the mortgage I am paying, (waiting to hear) This boosts my monthly income to £800 or so, as the council Tax is not the real money (would be an expenditure).

In the current situation I am at least £100 short every month. Cashing in the endowment will effect my Pension credit and have to pay council tax as well.So although I am saving nearly £600, I will be loosing £300+any interest refunds i am entitled to.

My head is now spinning, any advice please.
seb

dunstonh

If you use the endowment to repay the mortgage then they offset each other and wont impact on your pension credit.

AD endowments are unit linked and it is probable that you have been seeing double digit returns on this for the last 5 years.

What is the current value and surrender value of the plan? (you have not mentioned both, just one). This is important because it will tell you how much money you will lose by surrendering early. Without that information, there is no way to compare what is best and all calculations done on this thread so far are worthless without knowing the difference.

If there are surrender penalties, you would need to find out how they reduce over the coming years. Many providers reduce them down each policy anniversary whilst others remove all penalties after x number of years. You may only be a short period away from having no penalty and waiting until then may be the best option. I have known a difference of just 6 months result in a surrender penalty reduce by 5%.

sebastianj

Many thanks for pointing this out, I asked AD for the valuation they told me 33K, I did not realise that surrender value could be different. I will call them tomorrow. Need to talk to the building society as well.
thanks again,
seb

sebastianj

HI all again,

I have spoken to AD, surrender value of the endowment is the same as its valuation £33K. My mortgage is £29172. The question now is that if I surrender to pay off the mortgage, will I loose the council tax benefit??

kind regards,
seb

dunstonh

That means that AD no longer have a surrender penalty and that is good news. Whilst we cannot give advice here, I would be inclined to clear the mortgage.

If you do use hte 33k to clear the 29k, that will leave you with 4k surplus. I cannot recall what amount of capital you are allowed before pension credit gets reduced. It will say on their website but its around £6-£9k. So, as long as you have less than that, then you shouldnt lose your council tax benefit.