Can you please advise on my problem

spiderpigsmum

I wonder if you can help me with my situation. Due to misselling we have a shortfall on our endownment mortgage and 2 of our policies have matured 8 years before the mortgage term ends. Our mortgage with Britannia does not allow us to make any overpayments

Like a lot of people here we have been saving to (hopefully) pay off the mortgage. If we add our saving to the policies, We will have a total of approx £37,000. Mortgage is £42,500 and ends in 2016, by which time there will only be 2 policies left of £9,500.each(With bonus) We dont know how much the final policies will pay out, as the market is so precarious.

What I am hoping you can help us with is what is the best scenario.

a) Pay off part of the mortgage with the £37,000 and take out a small mortgage for the remaining £5,500 over a short period.

b) Invest the £37,000 and let the remaining mortgage run until we have the full total to pay off

c) Any other ideas that anyone else can think of

Summary

25 year Endownment Mortgage expires 2016
Savings & matured endownments in hand (by March) approx £37,000
2 x Policies remaining, £9,500 (With bonus) matures 2016
I am 61 and my husband is 55
Due to health problems, further life insurance is not an option.

Daft_Pegasus

The first thing to check is whether or not you're tied in to your current mortgage deal. If you're not allowed to make overpayments then there is a chance that you are.

If you are tied in then you need to look at your current rate, tie in period and penalities for exiting early to determine whether it's best to stay put or move.

If you're not tied in you then need to decide whether you want access to your £37000 of savings (offset mortgage) or whether you just want as low a mortgage as possible.

Jonbvn

I think you will find it extremely difficult to get a new mortgage for only 5.5k. The minimum limit is usually 25k. However, you could possibly remortgage onto a tracker mtg with no ERC's and then make a lump sum payment.

Another suggestion is to consider a offset mtg.

spiderpigsmum

Daft_Pegasus wrote: »

The first thing to check is whether or not you're tied in to your current mortgage deal. If you're not allowed to make overpayments then there is a chance that you are.

If you are tied in then you need to look at your current rate, tie in period and penalities for exiting early to determine whether it's best to stay put or move.

If you're not tied in you then need to decide whether you want access to your £37000 of savings (offset mortgage) or whether you just want as low a mortgage as possible.

-
I think you will find it extremely difficult to get a new mortgage for only 5.5k. The minimum limit is usually 25k. However, you could possibly remortgage onto a tracker mtg with no ERC's and then make a lump sum payment.

Another suggestion is to consider a offset mtg.

__________________________________________________________________



Many thanks for your advice. I gather we are tied in to the mortgage, as T & C's state that penalities will be imposed if we pay extra, and we have enquired in the past, and been told that we can only pay the set monthlyamount, no more, no less.

I really must be honest and say I have no idea what a ' tracker mtg with no ERC's ' involves. Or even what an offset mortgage is. Guessing that our savings would need to be with the same company that holds the mortgage for that?

I know very little about mortgages, as when We took ours out the only types were endowment and repayments. Also I had not realised that a small mortgage was not possible (Wishful thinking I suppose). I will try and do some research on the internet and see what I can come up with.

Thanks again for your time.

FreedomGirl

Hi spiderpigsmum,

I read your post and thought to myself that, with your savings, and maturing endowments, an offset mortgage might be a good idea. But got distracted from posting by the washing up and other housework

I've got one of the original types of "offset" mortgages (the VirginOne, now marketed by Natwest (I think), and owned by RBS. Since we took ours out in 2001, there have been loads more types launched.

There's more discussion of the One Account in this thread
http://forums.moneysavingexpert.com/showthread.html?t=587535

Strictly speaking, I think the One Account is called a current account mortgage, because the mortgage debt and your savings are all bundled together in one huge overdraft.

Offset mortgages mean you have one big debt (mortgage-say £50,000) which is offest by one (or more) savings account (say £30,000 savings), meaning that you only pay interest payments on the outstanding debt of £20,000 (50K-30K).

Have a look at the stuff on the internet. It takes a while to get your head around the ideas, so don't panic if it doesn't make sense at first

FG

Jonbvn

spiderpigsmum wrote: »

I really must be honest and say I have no idea what a ' tracker mtg with no ERC's ' involves. Or even what an offset mortgage is.

A tracker mtg with no ERC's is a mortgage whose interest rate tracks the BofE interest rate (usually with a few points added on) and has no early redemption charges (ERC's) when you overpay.

An offset mortgage is really quite simple. Your savings and/or current account are offset against the outstanding mortgage capital owed. This means you pay interest on the only difference. There is a website for such mortgages.
http://www.offsetmortgagecentre.co.uk/

One thing to note that if you retire and become non-tax-payers then you will not pay tax on any savings interest. This means that an offset mortgage may not be ideal for you. Offset mortgages are excellent products for high rate tax-payers.

Trying_to_be_good

Is the £37,000 your entire savings? It's normally a good idea to keep 3-6 months income saved somewhere in case of emergencies, so you wouldn't necessarily want to pay all of this off your mortgage in any case.

Do you save in cash ISAs (individual savings accounts)? As these pay tax-free interest, you can usually get more interest on these than you're paying on your mortgage (you haven't said what interest rate you're paying, what the ERCs (early repayment charges) are for paying off some mortgage early, or how long these apply for. You can each save £3,000 in a cash ISA this year, and £3,600 for the year from 6 April 2008 to 5 April 2009, so you could stash away £13,200 at a good tax-free interest rate by 6 April.

spiderpigsmum

FreedomGirl wrote: »

Hi spiderpigsmum,

I read your post and thought to myself that, with your savings, and maturing endowments, an offset mortgage might be a good idea.
There's more discussion of the One Account in this thread
http://forums.moneysaving.com/show.html?t=587535

Strictly speaking, I think the One Account is called a current account mortgage, because the mortgage debt and your savings are all bundled together in one huge overdraft.Offset mortgages mean you have one big debt (mortgage-say £50,000) which is offset by one (or more) savings account (say £30,000 savings), meaning that you only pay interest payments on the outstanding debt of £20,000 (50K-30K).Have a look at the stuff on the internet. It takes a while to get your head around the ideas, so don't panic if it doesn't make sense at first :)FG

Many thanks Freedomgirl. We are checking out the link, and the other mortgage options Really appreciate your help

Jonbvn wrote: »

A tracker mtg with no ERC's is a mortgage whose interest rate tracks the BofE interest rate (usually with a few points added on) and has no early redemption charges (ERC's) when you overpay.An offset mortgage is really quite simple. Your savings and/or current account are offset against the outstanding mortgage capital owed. This means you pay interest on the only difference. There is a website for such mortgages.
http://www.offsetmortgagecentre.co.uk/
One thing to note that if you retire and become non-tax-payers then you will not pay tax on any savings interest. This means that an offset mortgage may not be ideal for you. Offset mortgages are excellent products for high rate tax-payers.

Thank you Jonbvn. I am already retired, with a reduced state pension, and a small works pension. My husband is self employed, so we are not ideal mortgage candidates. The BS contacted us months ago, noting that we would have a shortfall, and asking what did we want to do.(Tick box options) We delayed sending the letter back, as we were unsure how the endowments would pan out. Also we did not want to alert the BS that all but one the endowments were due to mature, and that there was no lump sum to pay off the BS at the end of the term. I am unable to get any more life insurance as I have had cancer twice.

Trying_to_be_good wrote: »

Is the £37,000 your entire savings? It's normally a good idea to keep 3-6 months income saved somewhere in case of emergencies, so you wouldn't necessarily want to pay all of this off your mortgage in any case.

Do you save in cash ISAs (individual savings accounts)? As these pay tax-free interest, you can usually get more interest on these than you're paying on your mortgage .

Thanks Trying to be good. The £37,000 is (or will be) our entire savings. We have £12,000 in Isa's, which we have achieved by cost cutting, and advice from the great people here on M.S.E. We received £5,500 on the 1st Feb, this was endowment No 1.(This was paid direct to us and is now in Northern Rock Silver Saver)

Endowment No 2 is for £20,000 and is due to mature early March 08. The Insurance co wrote to us a couple of weeks ago and told us they were sending the money to the BS, as it was theirs. :eek: :eek: We were gutted.

But last week they wrote back, and said that the BS had 'No interest in the money' :beer: :rotfl: :beer: and would we please send the relevant policy and they would send us the cheque.:T

Couldn't believe it, everything then changed for us, as we were so much nearer our goal. Initial reaction was to pay it all to the BS, but now we realise we need to hold on to some of it.

But we have gone from only having access to £12,000 to having access to £37,000. Also my husband is also eligible next month to take part of his pension from his last employer. He will be 55 and has the option of a lump sum, and a reduced pension. So it's all happening at once. If he takes the lump sum, we can pay off all the mortgage.

We find it hard to get our head around really, as our lives have turned around just in the past few months. :j

Ideally we wanted to keep a small mortgage, and hold onto some of our savings. But it looks unlikely that we can do that. We have taken on board everything you have all helped us with, and are looking into the options.
Thank you all for taking the time to reply.:T :T :T

Jonbvn

SPM (where did you get that name?),

From what you have posted, I think your current mortgage interest rate (which you have never mentioned) sounds like it may be your lenders SVR. This rate will be higher than any return you could get on savings. Therefore, in the long term it is better to pay off the mortgage.

Another thing you need to consider is your health. For your peace of mind, I would suggest that paying off your mortgage is preferrable.