I have a 25 year with profits policy with Friends Life which has just over 7 years to run. It was supposed to yield at least 43k and the current surrender value is about 20k. The premiums are 66.41. It doesn't form part of our mortgage as we have had a fully repayment only mortgage for some years now. Its guaranteed value is 24k but if it grows at 7% the projected value could be 39k, but who knows? The final bonus will be decided by Friends Life. I don't know if it's going to earn more than that but it must be worth quite a bit more than the 21.25k offer (+5.5k in outstanding premiums) I've been quoted.
Our mortgage is large but manageable. We have 19 years to run and currently we are edging towards 40% equity if the zoopla current estimate is correct. We are on a fixed rate of 2.89 for the bulk of the mortgage, which ends in Spring 2017 (another 25k is on a longer fix ending in 2018). Ideally I would like to increase our equity before 2017 so we can benefit from the best deals as interest rates will have risen by then. We have a small amount if savings in addition to the endowment.
We are not in a position to make overpayments right now but by next March I am hopeful that all things being equal we might be able to manage at least 200pcm. DH has debts and is currently paying out a lot to get rid of them so belts are already tight. The majority of the money he owes will be paid off by next Spring, leaving us another £600 in our monthly budget.
I am wondering whether to sell the endowment and pump the money including the £66 monthly premium) into our mortgage (and in the short term use about 5k of it to do work in the house (new kitchen). Rough calculations suggest we would be saving around 16k interest and paying off the main part of our mortgage (ie not including the 25k 2nd mortgage) some 4 years and 9 months earlier. We would also be able to do the kitchen (which is urgently needed) and fully enjoy our home).
I don't know what to do for the best. If we wait and let the endowment mature the new kitchen will be a real struggle and won't happen soon. Not only that we will have less equity when our fix runs out. Any advice appreciated.
Hi we did this many years ago -we cashed in both our endowments from previous houses and paid a chunk off our then mortgage. but we were only about 7 or so years into them and they were looking poor. (and we asked about selling them and one they wouldn't even consider). You are a long way into yours, so wouldn't you miss out on your final bonuses?
we aren't experts, it just worked for us and we always chucked any spare cash at mortgage and are now nearly mortgage free. hopefully someone more able to advice you will come along.
Thanks Foxdongle. I am leaning towards keeping it and letting it run now. I think with some discipline we can make overpayments without dipping into it, and it must be due a decent return if a number of companies are keen to take it off our hands. Also, I have no other savings - this is it.
Endowent proceeds get topped up heavily at the end of their term, by a Terminal Bonus. You will lose this if you cash in early.
Also, your premiums will have been based on your age(s) at outset. So if you cash in this one and then subsequently take out another, the premium for exact same amount of cover is going to be be increased substantially (as you are now older & therefore more likely to die).