Sell/surrender or keep this endowment?

[palomadove]

Hi,

Have posted this in investments too and would be grateful for any thoughts... we have an endowment policy tied to the interest-only bit of our mortgage which was intended to pay off £37,000.

But, like most endowments taken out in the late 90s, over the last 10 years it has under-performed and the guaranteed amount it will pay in just under 7 years time is just over 28,000.

This isn't a problem for us, as we have overpaid the mortgage to cover any shortfall - however, we are wondering if continuing to pay £130 a month premiums is throwing good money after bad? If we surrendered it now, we would get a guaranteed £18,000 - maybe more if we sold the policy rather than surrendering it. We could then convert the remaining amount of the mortgage to repayment, and it would save £34 a month overall.

What are your thoughts about how the endowment market might perform over the next six years? It's with Friends Provident if that's any help.

tia

If you are paying £130 a month for another 7 years, that's roughly £11k, if it's only predicted to increase by £10k then it's a gamble to hope it performs significantly better than predictions. Another option to consider would be cashing in/selling now and reinvesting in something with a guaranteed min payout at end of term, keeping this part of mortgage on interest only. It's something only you can make final decision on, just trying to think of a way that you can still make some profit on the endowment money as I'm sure you were originally promised!

If it is a with profits policy would be worth seeing what you can sell it for.

If it is a unit linked policy AFAIK there is no market for selling these.

Either way It does sound as if carrying on paying into it will be throwing good money after bad as it is not predicted to return your contributions.

Sounds like the best plan would be to surrender now (or sell if offered more) and use this to reduce the mortgage.

Then convert the mortgage to repayment to ensure it will all be repaid.

Would not rush into casing in the endowment - this also gives you cover as well if anything should happen which you may need. So although its a close call tbh I'd keep it going and then convert / overpay. We are doing this now and for the last 18 months or so. We pay off the mortgage and then get a big tax free lump sum from the endowment.

The MSE site is good and goes throught he pros and cons. The stock market is also picking up now so the endowment may start to grow faster anyway. Yes its a bit of a risk but factor it all in.

It does give life cover but is a very expensive way of doing this.

Would be cheaper to but a stand alone life insurance policy.

Op is looking at a shortfall so won't be looking at a lump sum sfter paying off mortgage.

buy, not but!

I would get rid and cut any losses now and take out simple life insurance

I assume you have one mortage amount in total one part IO and one repayment. Depending on the lebnder / product you can re-assign over more of the mortgage to repayment and reduce the IO part - usually there is a small fee to do so. Then overpay on the repayment part wil bring the mortgage down much quicker.

You may not be allowed to pay off a big sum off the IO part of the mortgage now without incurring fees - again check - many mortgages only allow up to 10% one-off annual payments and then a monthly over pay - which we've been doing both and have spreadsheets to show how much interest we've saved!

I'd check with your mortgage provider and the endowment to see what their views are - or if you have a friendly IFA ask them for a bit of advice.

Personally based on the numbers you've given its quite a close call. Check out money saving expert more articles and information there.

Many thanks everyone.

Yes, I thought I would check with our IFA again. He sold us the policy, but, to be fair, at the time warned that it might not be a great idea and persuaded us to have a bigger portion as repayment.

We could pay off as much as we like without a penalty as the mortgage has just reverted to standard variable rate from a fixed-rate.

Life cover would only be £7 a month for us both, so keeping the endowment for life cover isn't worth it. Not sure if we would keep the very low interest rate (2.5%, SVR) if we converted it all to repayment, will check this.

Not sure if it's unit linked or with profits.

thanks again!

You need to check if there's an exit penalty from the endowment, and also what the terminal bonus is likely to be. You also don't know what the stock market will do over the next 10 years.

It's worth looking at the tables of what the pay outs at the moment for the respective endowment policies.

We have just reached the end of a policy. It didn't do as well as expected but made £36,800 where we had only paid in £17,980 over 23 years; that's a 50% return, or so it looks to me.