Surrender endowment policy for mortgage or continue it

Hi,

I am sorting my finances with the view to buying a house for around the 350K mark. I am a FTB. I have already just over 100K for the deposit.

I also have a 10yr, with profit, endowment policy which I started in Oct 2001. I am paying €240 a month into it and the surrender value in Dec 07 was €19,600.

Should I surrender this policy and add the cash to my deposit and so reduce my mortgage or should I finish the 10 years and then pay the final amount off the house? (in Oct 2011).

Thanks,
Japjap

It's generally a not good idea to have significant investments and significant debt i.e. it's sensible to cash in your savings to add to your deposit.
You'll need to supply more info however as to the nature of the with profits policy such as the regular bonus, any early encashment penalties and any loyalty bonus for staying the full term

You may be better off to keep the endowment policy until maturity date otherwise you may lose out on any terminal bonus. You have only 3 years left so it may be worth your while to carry it to the full term.

Hi, just to note if this policy is assigned to a bank in respect of your mortgage the bank are the only ones who have the power to surrender that policy as they are effectively the policy owners. In my experience they do not do this very often before the mat date of the policy when the mortgage is outstanding. Also you will lose out on a proportion of the terminal bonus on the policy.

Thanks for all the replies.

There are bonuses involved but not sure how much. I'm also not sure about early encashment penalties or terminal bonus, i'll have to hunt down that info. All I know at the moment is the bottom line, as of Dec '07.

It is not assigned to any bank.

For me it boils down to this. Will the difference between surrendering now or in Dec '11 (minus the extra premiums) be significantly different to offset the interest I will pay on €20k for three years. Includeing a possible higher interest rate due to lower LTV.

I'm also considering the affordability of a slightly higher mortgage on top of €240/month endowment premiums for teh first 3 years.

Japjap

It all depends on how much the policy is due to pay out in Oct 2011.

From Oct 2001 - Dec 2007, you paid 20800 in premiums and the surrender value was 19,600. From Jan 07-Set 11, you will pay 45 * 240 = 10,800 in premuims.

If you pay this 19,600 off the mortgage, you save approx 3000 in interest ( A very rough calculation using 5% as a nominal interest rate, I'm not convinced about this calculation. Must rethink it)

If you save the 240 a month at 7%, you will gain approx 370 in interest.

If the value of the policy in Oct 2011 is more than
(19,800 + 10.800 + 3000 + 370) = 31270, then it is worth keeping it up.

these calculations are quite rough and may need to refined a bit, but I hope they
give you something to help you decide,

Hi Huskerdu

That was exactly the kind of explanation I was looking for, thanks. That will make my decision a little easier.

japjap