I retire at 60 but must pay my mortgage until I'm 70

Q I have a three-year fixed-rate (5.49%) interest-only mortgage with Nationwide which expires on February 28 2005. The remaining mortgage term is 15 years two months. The balance owed is ?59,054.

I have three endowments, currently the subject of a complaint to the Ombudsman because of a shortfall and completion date when I am 70-years-old, which cost me a total of ?169.58 per month.

My mortgage is held jointly with my wife. Both of us intend to retire from our school teaching posts at the age of 60. My wife reaches 60 in March 2006, I reach 60 in March 2007.

We feel that continuing to pay out for an endowment that will not allow us to pay off our mortgage even when we are 70, let alone 60, is simply throwing good money after bad. We therefore propose to surrender the endowments

We also propose to change our mortgage to a repayment mortgage when the current fixed rate expires.

Would you please advise us if this is the most sensible course of action for preparing for retirement, and would you please recommend what sort of repayment mortgage we should aim to convert to?

Although we believe our endowments were mis-sold to us we have to face the possibility that the Ombudsman may not agree with us and that we may not receive any compensation. A small long-standing policy, not the subject of a complaint, matures in December 2005 and we shall gain an income of some ?9,000 from it which we intend to use to pay off some of our outstanding mortgage early.

DK

A Making sure that your mortgage is paid off by the time you retire is an extremely sensible course of action. But surrendering your endowment policies may not be - so don't do anything hasty without first exploring the alternatives.

Given that you feel that continuing to pay premiums is 'simply throwing good money after bad' one alternative is to make the policies 'paid up' which means you stop paying premiums but let the policies run for their full term. The advantage of making your policies paid up is that you are likely to get more than you would by surrendering them. But the possible disadvantage is that you have to wait until the policies' original maturity dates to get the money.

However, if you don't want to wait this long and would rather raise cash from your policies now, the alternative to surrendering your policies is to sell them. You can find out whether this is possible and if you'll get a better deal by selling by using the no-obligation quotation service offered by independent financial advisers Baronworth which says that, if you're lucky, you could get up to 10 to 20 per cent more than you would by surrendering.

As far as the type of repayment mortgage you should switch to when your current fixed rate comes to an end, I would say: one which has affordable monthly repayments; is flexible enough to allow you to make one-off lump-sum repayments without penalty (using the ?9,000 proceeds from the policy that is due to mature in December, for example); and which, as far as possible, will help to ensure that you have a mortgage-free retirement. And I'd be tempted to stick with the Nationwide - at least until you've had the Ombudsman's decision on your mis-selling claim.

If this is successful - and from what I have read about other claims, the fact that your mortgage and endowment were set up to continue past your expected retirement age suggests that you have very strong grounds for complaint - any compensation due will broadly put you back to where you would have been if you had taken out a repayment mortgage rather than an endowment. So this could mean that you would owe less than the ?59,000 that you owe now and so the decisions about what sort of mortgage you need will be different.