Advice Needed on Endowment/Mortgage

curtismoore66

Hi, this is my 1st post on the site so take it easy on me.

I currently have a £31500 interest only mortgage over 25yrs with 11yrs to go.
Like many i opted for an endowment policy to cover the mortgage at the end of the term.
My current situation is I'm with the Chelsea building society in the last year of a previous cash back deal (5yrs) interest rate of 7.49%
The last 18mths I've been making over payments the maximum of 20%
My endowment is a with Standard Life with profits fund details of which are below:

Current Fund Value at 10 Apr 2008
Fund Units Selling
Price Value Life With Profits Fund 3786.864 209.1 7,918.32 All Funds 7,918.32
Current Surrender Value
Total Fund Value 7,918.32
Final Bonus 1,740.61
Total plan value 9,658.93


Date Low Intermediate High Total
premiums
due 25 Mar 2019 18,400.00 21,600.00 25,300.00 6,078.40

I pay a monthly fee of £46.40 which also covers life insurance.
I also have an ISA with £12,000 and about £1000 in shares.

Basically I would appreciate any feedback on my situation.
I really would like to pay off the mortgage asap.
I know i will probably have to wait until this time next year before i make my final decision on what option to take.(due to tie with Chelsea)
Lots of things going around in my mind like cashing endowment in,using ISA to pay a lump some off the mortgage,switching to a repayment.
Thank-you in advance for your advice.

EdInvestor

Hello curtis

Could you give SL a ring and ask them for the maturity projections and whether or not there is any "mortgage promise" money allocated.Also please check the surrender value.

curtismoore66

Hi Ed,
Thanks for taking a look for me.

I've just come off the phone with Standard Life.

Maturity Projections are:

Low: £18,300
Intermediate £21,500
High: £25,300


Mortgage Promise is between £1,440 and £2,160

Surrender Value is £9,658.93

sebastianj

Sorry to be asking another question, Endowment insurance are these tax free?? I guess it does not matter if one cashes it in early>?
rgd
seb

EdInvestor

curtismoore66 wrote: »

Maturity Projections are:

Low: £18,300
Intermediate £21,500
High: £25,300


Mortgage Promise is between £1,440 and £2,160

If you surrendered this policy and used the lump sum to reduce the mortgage, also increasing the mortgage payment by the endowment premium to maturity then you would get a guaranteed return of 30,680 which comfortably beats their best (unguaranteed) estimate plus the (also unguaranteed) mortgage promise.So not a lot of point in hanging on.

It might be worth seeing if you can get a bit more by selling it, quotes here:

https://www.apmm.org.

On the tax point, if the policy is under 10 years old and has made any profit, tax may be payable.

curtismoore66

Thanks for that Ed.

Am i right in thinking once I've cashed my endowment in and paid that amount off my mortgage,it's best to take the remaining mortgage over to a repayment mortgage ? over paying where i can.
Also would it benefit me using some of my ISA ( £12,000) to pay off an additional lump sum ?

Thank-you once again for your help in this matter.

Curtis.

EdInvestor

curtismoore66 wrote: »

Am i right in thinking once I've cashed my endowment in and paid that amount off my mortgage,it's best to take the remaining mortgage over to a repayment mortgage ?

I don't see the point - not only will it likely cost you to do so in fees, but it's less flexible and if you overpay the I/O mortgage by more than the amount needed to equal a repayment loan, you will save more in interest (that's why they usually limit overpayments). Plus it's more flexible in case something goes wrong and you need to reduce your outgoings for a while.

IMHO for people with discipline, overpaying an I/O mortgage is the way to go.Offset is another area you might like to investigate - I believe Intelligent Finance will allow you to offset your ISA. This would be good as you don't want to lose the tax relief.

Also would it benefit me using some of my ISA ( £12,000) to pay off an additional lump sum ?

IMHO no.

curtismoore66

You have been really helpful Ed thank you :beer: