Should you hang on to your endowments policy?

Q I recently sold my house for ?58,000. After paying the usual fees and few months mortgage arrears, I made nothing on the sale.

However, I had an endowment mortgage, the endowment bit being with Standard Life. Because of uncertainty in my current job, I don't want to buy a new house until September 2003 at the earliest. I will then be 46, my wife 43, and we will have a joint income of approximately ?42,000 (?32,000 from me and ?l0,000 from my wife).

When my house was sold, in March last year, I stopped paying the endowment policy premiums. Standard Life have now informed me that the policy must either be surrendered or transferred by April this year. I don't have the full surrender value, but it is likely to be between ?l3,000 to ?l5,000.

If I want to buy again, what is the best course of action with the endowment? Surrender it, sell it or hang on to it for a transfer to a new mortgage? If the last, what is my best option for obtaining a new mortgage and how much could l get? On top of all this I have about ?20,000 of debts (loans, credit cards etc). Will this affect any of the above?

A It is difficult to give specific advice with so many uncertainties. However, on balance, I would consider selling the endowment policy on the second-hand market, where you should get more than the surrender value, and use the proceeds to reduce your debts as much as possible. The debts are costing you much more in interest payments than any likely growth in the value of the endowment policy.

You could then start with a clean sheet if and when you want to buy a new house. At age 46, and with your salaries, you should still be able to obtain a sizeable mortgage, possibly a repayment loan this time, of up to ?90,000 or more.

However, it would be best to keep at least 5% of a likely house purchase in cash as 100% mortgages can be difficult to obtain, depending on the state of the market.