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Sell Endowment, pay mortgage?

2

Comments

  • dunstonh
    dunstonh Posts: 118,604 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Surrender penalty depends on time left until maturity date. Its not a fixed figure.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • DunstonH/Edinvestor,
    Apologies if this sounds really thick (as I'm sure it does) but what your helpful advice has so far not addressed is the fact that I am also paying an interest only mortgage until the end of the endowment/mortgage term at which point I will need to find £34,500 which by SL's figures seems at best extremely unlikely to come from the endowment. I could change to a repayment for the remainder of the term at no increase to my outgoings if I dump the endowment at the price offered and use that to reduce mortgage. That would guarantee my mortgage being paid off. Surely it is only worth hanging on to the endowment (or making it paid up) if there is a significant possibility/probability of the policy doing better than that and I don't have any indication that that could be the case?
    Thanks to you and Edinvestor I now appreciate that an SL demutualisation windfall might be more than the 1K max figure bandied about and that bonuses might increase after dm, but ,even allowing for that, is the policy really likely to make up a projected £10,000 shortfall? If not, aren't I better off ensuring my mortgage will be paid off without having to dig into pretty meagre savings? Given current figures it seems a pretty big gamble to stay put when there is a straightforward way to ensure the mortgage is paid off doesn't it?
    Sorry if this is too simplistic but that's my level of understanding!
    Just because somebody is certain doesn't mean they are right!
  • Unsure et al,

    I am in exactly the same predicament as you. I have two Standard Life policies that are likely to mature with a shortfall of around £10K. What is more; both policies have increased in value this year by less than half the amount of the contributions paid in. I have calculated that if I surrender my policies now and slice a massive chunk off the capital of my existing interest only mortgage (no penalty for doing that with my mortgage provider), I will repay the mortgage two years early. Beyond that date if I continue to put the monthly repayment into a savings account I will have built up a nest egg of around £5,000 by the time the original mortgage repayment date arrives.
    Considering that this was the original point of the endowment I find my own argument very persuasive when set against a lack of confidence in Standard Life (the 'Mortgage Promise' being a case in point, ie when is a promise not a promise?). I find the talk about demutualisation very speculative. I would very much welcome constructive arguments against this view point as I too may well have missed something.
  • dunstonh
    dunstonh Posts: 118,604 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    unsure wrote:
    DunstonH/Edinvestor,
    Apologies if this sounds really thick (as I'm sure it does) but what your helpful advice has so far not addressed is the fact that I am also paying an interest only mortgage until the end of the endowment/mortgage term at which point I will need to find £34,500 which by SL's figures seems at best extremely unlikely to come from the endowment. I could change to a repayment for the remainder of the term at no increase to my outgoings if I dump the endowment at the price offered and use that to reduce mortgage. That would guarantee my mortgage being paid off. Surely it is only worth hanging on to the endowment (or making it paid up) if there is a significant possibility/probability of the policy doing better than that and I don't have any indication that that could be the case?
    Thanks to you and Edinvestor I now appreciate that an SL demutualisation windfall might be more than the 1K max figure bandied about and that bonuses might increase after dm, but ,even allowing for that, is the policy really likely to make up a projected £10,000 shortfall? If not, aren't I better off ensuring my mortgage will be paid off without having to dig into pretty meagre savings? Given current figures it seems a pretty big gamble to stay put when there is a straightforward way to ensure the mortgage is paid off doesn't it?
    Sorry if this is too simplistic but that's my level of understanding!


    Quite possibly it would be better to get rid of it now or at least make it paid up until demutualization and convert to repayment now. Then surrender after DM.

    However, that sort of specific advice cannot be given here as endowments are a regulated financial services product and there are variables that need to be taken into consideration. We cannot address those here so we can only give you options to consider rather than tell you what to do. If you want to be told what to do, take the information to a local IFA and ask them.
    I find the talk about demutualisation very speculative. I would very much welcome constructive arguments against this view point as I too may well have missed something.

    I think you have missed something. DM is almost certainly going to happen in the next 12-18 months. Standard Life really need it to survive long term. They need the money. The board are pushing for it and the vote should take place very soon.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • DunstonH
    Thanks for your considered and lucid replies on this subject which have been helful and given useful food for thought.
    Just because somebody is certain doesn't mean they are right!
  • Thanks for all your comments and advice. I've decided to sell endowment (offered £1000 more than surrender value with SL) and pay off most of remaining mortgage. I will convert the remaining +_ £9k mortgage to repayment over the original endowment term and have the security of knowing it will be paid off. This will leave me financially slightly better off once I am not paying the endowmnet premium even allowing for an increase in the mortgage repayment over the interest only cost. Far more importantly, it will give me peace of mind and allow me to start planning for something other than a mortgage shortfall (probably pension!). I appreciate that I| will l miss out on a windfall (but I'd have to pay circa £1500 to stay in and get it) and that SL may return more than their current projections...but frankly I no longer trust them to look after my interests and want out.

    Incidentally, my building soc (Nationwide) has been absolutley first class in working out payment figures, offering different options and being as flexible and helpful as possible (offered to extend loan period to whatever duration would suit the payment we could or wanted to pay and no penalty for large overpayment). As the nice gentleman said " it's in our interest to make sure you can pay off the loan so we'll do wahtever we can to ensure that"-- might be worth bearing in mind for those doing a lot of endowment head-scratching.
    Just because somebody is certain doesn't mean they are right!
  • dunstonh
    dunstonh Posts: 118,604 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Had a conversation today with a Standard Life employee who mentioned that he almost certainly expects SL to levy an increased market value reduction on the plans at demutualization to reduce a massive withdrawal on the with profits funds.

    People waiting for a £500 windfall may find they lose more by waiting and getting £500 rather than leaving before the MVR levy is increased/introduced.

    BTW, the £500 figure was his amount given not mine. Now, I'm not sure how much I would place on his comments but it certainly makes sense that if a mass withdrawal was to take place on the with profits funds, then an MVR would almost certainly be introduced or increased.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    People waiting for a £500 windfall may find they lose more by waiting and getting £500 rather than leaving before the MVR levy is increased/introduced. BTW, the £500 figure was his amount given not mine.

    This is only half the story: there will be two windfalls , a flat rate ( likely to be 500 quid) for loss of membership and a variable rate based on a percentage of the value of your policy and how long you have been a member (the longer the better).

    What percentage? 10-15% seems a reasonable possibility. So an average policy worth 14k would probably get something near 2k. This is educated guesswork however, do not make any investment decisions on this basis as many things could change before the float (expected in June or September next year with the vote in May at or near the AGM), not least the stockmarket.

    It certainly makes sense that if a mass withdrawal was to take place on the with profits funds, then an MVR would almost certainly be introduced or increased.

    Management have already said they will arrange an orderly departure from the WP fund.There are likely to be special offers and incentives to move to other products. No way is it in their interest to have millions of angry new shareholders with money trapped in an old WP fund! They've already been asked about this.
    Trying to keep it simple...;)
  • But.... to get any demutualisation gain post July I will have to pay in a further £450 in premiums while paying the building soc a further £1800 in interest only mortgage. It still looks better to me to take what's on the table now and start actually paying off the mortgage, knowing that I can then do so, safely and on time without an increas einb outgoings. As I say, and Dunsronh's comments reinforce my view, I just don't trust SL to have my best interests at heart and figure I'd rather be making decisions that will get my mortgage paid off than trust to their less than tender mercies.
    I know two friends who have kept SL endowments: in both cases they have switched to a full repayment mortgage and kept the endowmwnr purley as a low cost savings vehicle. I can see the sense in that but I'm not in a position to service the full mortgage as repyament unless I can reduce the sum by selling the endowment.
    Many thanks your thoughts which I hope will also be of use to others on the board in similar situations.
    Just because somebody is certain doesn't mean they are right!
  • EdInvestor
    EdInvestor Posts: 15,749 Forumite
    Whatever floats your boat, unsure. :)
    Trying to keep it simple...;)
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