Endowment or Repayment

edgebiker

I have a £20,000 Endowment mortgage at the moment with 11 years left to run. Endowment for £20,000 with 4 years left. At present on fixed rate which ends in October. N/wide have offered me a 2 year tracker at 4.94%. I have £23,000 in savings. £8,000 on credit cards all at 0% until November.
My Question. Would i be better to stick with the Tracker and make overpayments (no charge up to £500 a month) with a view to paying off in full when the endowment matures, or would i be better switching to repayment and letting run full 11 years?
Payments on the tracker will be £80.91 for 2 years. Then £98.06(5.99% svr) for remainder 9 year.
Thanks in Advance.

FOSman

If you can afford it, pay off the mortgage. If you are worried about the policy, then surrender it. If you are happy to continue to take the risk attached to the endowment policy, then stay as you are.

If I was you, I would be asking the life company for re-projections and the current surrender value. Is your policy on track?

EdInvestor

Hi edgebiker

Post some info on the endowment to see if it's worth keeping.

Insurer
Guaranteed sum assured
Bonuses so far
Surrender value
Maturity date
Monthly premium

If not With-profits, projections at 4% and 6%

dunstonh

If you are worried about the policy, then surrender it

A lot of very good endowments have been surrendered on the misunderstanding of the policyholder thinking that they are all bad. Not all endowments are bad. Most do not understand how their endowment works and may think its bad, when it is not.

Plus, projections on the red/amber/green scale do not help. I have seen many red warnings on clients who have values higher than they should be at that point of the term to repay the mortgage at the end of the term. Its useful information to have but shouldnt be taken in isolation.

Ian_W

I agree with dunston about the endowment for slightly different reasons - the life assurance aspect. The fact that the EP has only 4 years to run suggests that it was probably purchased some time ago, though you don't give your age or say how long the term was. If it was purchased a good few years ago, also factor in how much the same level of life cover would cost you now - there's a quick quote finder on moneysupermarket linked to this site. Whilst rates have gone down, you were rated at the age you bought it - now you're older the same cover is likely to cost a lot more and if you keep the mortgage, you should still have life cover.

We still have £40k worth[?] of endowments which no longer support a mortgage, it would cost us as smokers [I know, filthy habit etc, etc] about 60% of the current EP premiums just to get the same life cover, as non-smokers it would still be over a quarter. Forgive the pun, but that really is DEAD money!

As soon as endowments are mentioned, because of their bad rep, everyone does an Ann Robinson, "Ditch the dunce, end the endowment!" and I think, like dunston, many reasonable ones have been cashed-in on hype.

Personally, looking at your circs I'd be tempted to leave the savings - you need £8k to cover the CC's if you ever lose 0%, and you should keep some rainy day savings - so I'd only consider £5k available to pay off the mortgage anyway. I'd take a conservative view of how much the EP will pay in 4yrs, leave that amount on Interest only and convert the rest to repayment. You can still overpay and when you get the EP money it should pay off a chunk [maybe even all] the mortgage.

BTW - I'd also go for one of the NW's fixed rates rather than the tracker, but that's just a personal preference.

EdInvestor

The cost of replacing life cover should certainly be considered where necessary, and particularly if health circumstances have changed.In the latter case it will often make the case for keeping the policy.

But for many people the endowment life cover was superfluous to their needs from the start and they have been paying for it unnecessarily throughout.Indeed it is part of a misselling complaint in some cases.

Ian_W

edgebiker wrote: My Question. Would i be better to stick with the Tracker and make overpayments (no charge up to £500 a month) with a view to paying off in full when the endowment matures, or would i be better switching to repayment and letting run full 11 years?

EdInvestor: Had the question been about mis-selling I would have left it to heavyweights, [like yourself & dunston] who know far more about the subject to argue it out, simply content to gain knowledge as a spectator.

The question wasn't about that, for all we know the OP may already have gone down that route and had a pay-out or decided themselves that they knew the risks involved and have no claim. Mis-selling is about what happened THEN, if established the quantum relates to what happened between THEN & NOW, the OP's question was - what do I do for the future?

FOSman then suggested that if worried about the endowment they may want to surrender it.

My point was simply to the OP, that in considering that option, they SHOULDN'T overlook the life assurance aspect. Whether it's an important consideration for them, only they will know.

Your point that, "and particularly if health circumstances have changed.In the latter case it will often make the case for keeping the policy." is well made BUT so is mine, based simply on AGE - with no medical underwriting.

Our quote for the level of life cover on our endowment, for the length of time it has to run, is £43pm - the same figures for us if we were 15yrs younger is just over £10pm. Whether we, or the OP, want to keep that level of cover is for us, respectively to decide. Either way it's about what we do from now on, not what happened in the past.

Like Tina Turner, I wish I could turn back time. But none of us can.

Rikki

Personally I would take the tracker mortgage and pay the mortgage off with the endowment when it matures.