Should I cash in my endowment and pay off my £41,000 interest-only mortgage?

Q My endowment is due to mature next year in September. It is a nonprofit policy, so there is no bonus for letting it mature.

The endowment is currently valued at about £51,000, which is about £10,000 more than my current mortgage. The interest I pay on this mortgage is a tracker rate, so has been going up recently in line with the Bank of England base rate. On top of this I pay about £110 a month for the endowment, making a monthly total of £200.

I also have a £52,000 repayment mortgage, which has about nine and a half years left on the mortgage term. I’m thinking that if I cash in the endowment and pay off the £41,000 interest-only mortgage, I can use the £200 a month I am currently paying for it to overpay on the repayment mortgage.

Although the £110 I pay for the endowment doesn’t change each month, its value goes up and down in line with share prices.

A I don’t think you have got a nonprofit endowment because, as I understand it, with that type of endowment you agree the size of lump sum at the outset and that’s what you get at the end of the policy term. As your policy seems to fluctuate in value, I suspect that, instead, you have a unit-linked policy. With this type the value depends on how well the units you invest in perform.

Anyway, your idea to cash in your endowment and pay off the interest-only mortgage seems a good one – as does your plan to use the £200 a month you would save to overpay on your repayment mortgage and so reduce its term. You could reduce this even further by using any surplus over the cash-in value of your endowment to overpay even more of your repayment mortgage.

Cashing in an endowment can be a bad idea, however, if you need the life insurance it provides to pay off a mortgage in the event of your untimely death. If you need the life insurance but are struggling with the cost of paying premiums there is an alternative. You can explore making the endowment paid up. This means you stop paying monthly premiums but wait until the end of the term to get the lump sum which is also when the life insurance part comes to an end.

Want expert help finding your new mortgage? Use our online tool to search thousands of deals from more than 80 lenders with the Guardian Mortgage Service, powered by L&C.

Source link

Leave a comment

%d bloggers like this: