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Pros and cons of cashing in endowment?

(13 Posts)
Diagonally Sun 02-Mar-14 17:44:32

I have a part repayment, part endowment mortgage. Repayment is 55k, endowment covers 30. Supposedly on track to pay out in 2025, although I am doubtful it will cover the full 30k. Repayment mortgage currently 22 years.

I have some credit card debts I need to clear, could do with new car as current one aging and maintenance costs are getting higher, and I have some work needs doing on house.

I am considering cashing in endowment (current value 11k) to cover these.

My mortgage deal ends in the autumn at which point I should be able to remortgage full amount on repayment.

So if I do it now I would be paying interest only on 30k loan for six months.

Is this a good idea or financial stupidity? What do I need to consider?

TalkinPeace Mon 03-Mar-14 15:27:19

pop the figures from your endowment into my spreadsheet - linked on the spreadsheets thread

you have three options
- keep putting money into it
- have it as "paid up" and see what happens with your existing premiums
- sell it and have cash today

who is it with ?

Diagonally Mon 03-Mar-14 17:50:37

Thank you talkin I will have a look when not on phone!

I now have a surrender value (it's a unit based policy with Friends Life) of 12k.

I also found out I can convert my mortgage to full repayment any time I want with no fee so I could do that now and surrender endowment.

LightastheBreeze Mon 03-Mar-14 17:53:38

I would check if you have to pay tax on the proceeds, as I think you do if you cash it in before 10 years or if its not a certain amount through the policy.

Notmadeofrib Tue 04-Mar-14 16:00:49

Honestly, the figures can hide if you have bonus' attached to the account! Oh but it were so simple to 'pop it in a spread sheet' talkinpeace this is HIGHLY misleading SOMETIMES, but those are the times that matter, no?

Ask what bonus are attached to the contract ask when they are paid, how they are calculated and if there are guarantees. Also, the form of the bonus (% of value shifting units is meaningless), their payment record for the last 5 years. .... once you have detailed facts, run the number on the spreadsheet.

All that said, a newer endowment is likely to be very low return, subject to price movements and higher risk than repayment. You will also have some life cover in the policy. Do you need this? If you're not using it, why are you paying for it?

Endowments are smoke and mirrors and never quite a straightforward as they seem - they take a multiplicity of formats.

That 10 year rule is also wrong! 10 years or 3/4's of the term if sooner. Qualifying contracts are not taxable - another factor to consider if you are a higher rate tax payer.

TalkinPeace Tue 04-Mar-14 16:47:59

notmadeofrib
please look at my spreadsheet before you slag it off

the historic bonus rates are based on past published figures by several providers
the future bonus rates are a pretty realistic guess
the terminal bonus factor is clearly included

and the "projections" that companies send out do not add up : I've tested them to death on spreadsheets and finally got through to managers who admit they have no actuarial basis

at least my numbers are transparent
produce better ones before slagging mine off

Notmadeofrib Wed 05-Mar-14 12:40:45

talkinpeace

The thing about endowments is they were designed to be opaque (as you know), not talking to the provider, which by using your spreadsheet is what may happen, is utter madness. I DO produce numbers and full reports which I have a legal obligation to do if I advise a clients. I also carry a licence and full insurance. Your spreadsheet would not satisfy the FCA.

Some contacts carry valuable guarantees (very few and the structure of them is important), but you will not know without asking the provider. Contracts vary within companies depending on the exact product and when some crazy product designer put it together.

Projections from companies are, for want of a better term, utter shite, but that was not what I suggested the OP looked at.

I also said, ask the provider then use the spreadsheet (it is a useful addition), but it WILL NOT do all the due diligence. Call me overly cautious, but TBH that's not usually a bad thing.

I'm sorry if I offended, I appreciate the tone was slightly more dismissive than necessary.

Ilovecoodomol Wed 05-Mar-14 15:44:07

Hi, I'm new to mumsnet, my first post. Just thought I would add my tuppence worth. I found myself in a similar situation some years back, I was advised by a fellow accountant to sell my endowment which was worth about £10,000 at that time. He told me all endowments were crap and to get shot of it whilst I could.

I have learnt since though that was the wrong advice, there are different types of endowment policy and I discovered mine was one of the better ones. Thankfully I didn't take his advice and I later trained in selling insurance where I discovered that my Standard Life policy was a with profits policy which included a final bonus which was worth 50% of the final payment - but the final bonus was not included in the forecast figures I was provided with. Seems a bit stupid they weren't, but because of some legal jargon (can't remember what now) Standard Life were only allowed to inform me of the target amount less the bonus which showed a shortfall. I was being warned throughout to ensure I make arrangements to cover said shortfall therefore I adjusted my mortgage to part repayment to compensate only to find out I didn't need to.

At the end of the day, not all endowments are crap, there is a reason companies are buying up endowment policies - some of them are actually quite good and will make money, whatever bad press they have received. As an insurance policy, they are brilliant products, but because of the mis selling scandal the industry panicked and scrapped them, you cannot get an decent life & critical illness insurance policy nowadays that gives you a financial return at the end of you don't claim. If you have been offered money for yours it must be a decent policy so just be careful and take proper advice from a financial adviser trained in these matters, there are too many 'experts' telling people to get rid of endowments when they know nothing about them, I'm surprised I haven't heard of any negligence claims yet.

Diagonally Thu 06-Mar-14 18:30:52

Thank you for all your comments, the policy is 15 years old so I had understood it would be tax free.

It's not a with profits fund but I will dig out policy docs and get some financial advice before I do anything.

Kazza28 Sat 07-Jan-17 13:47:27

I have one year left on an enterprise policy. Its has already exceeded the target amount. Should i cash in or stick with it

kath6144 Sat 14-Jan-17 09:10:49

Kazza - is enterprise the company, or type pf policy?

At only a year to go, I think it would be madness not to stick with it, as it could well have final bonuses that you would miss out on.

I have had 3 policies, all attached to mortgages when I was single. Didn't need them when married, but kept them on, partly for insurance and as we didnt immediately need the cash.

Two paid out together about 6 yrs ago - combined target was 31K, I got just under 30, so although a shortfall, not much of one.

Third one, with Aviva, pays out this July, I think the target value is 24k. I am expecting a shortfall but hopefully not too much!

Op, as others have said, you need to do some research or take advice before making a decision.

OurBlanche Sat 14-Jan-17 09:15:37

ZOMBIE THREAD

OP probably made her choice THREE YEARS AGO!

OurBlanche Sat 14-Jan-17 09:16:32

Sorry kazza Your best bet is to start a new thread of your own.

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