What should we do with our endowment mortgage?

Q We are in the process of selling our current property and purchasing another. We have an endowment mortgage of ?58,000 on the current house. The insurer predicts that the endowment policy is now likely to generate ?25,000 when it matures in 2011. We intend to continue with a mortgage with the purchase of our new house [value ?395,000]. Should we use some of the anticipated surplus derived from the sale of our current house to reduce the mortgage by ?33,000, leaving a ?25,000 mortgage to be repaid via the insurance policy? Is there any other way of addressing the projected deficit in the insurance policy and avoid immediately using up the surplus capital to reduce the mortgage?

CM

A The performance of the endowment policy seems pretty dire, especially as the predicted return of only ?25,000 includes, l assume, you paying premiums for the next eight years or so. My views about endowment policies are no secret. I believe they are poorly performing savings plans, laden with expensive charges. There is a case for making a clean break by surrendering the endowment policy immediately and using the proceeds to help reduce the size of the new mortgage. However that partly depends on how long you have held the endowment policy and whether it is worth much. Certainly, with interest rates on the way up, l would advocate using any surplus funds to cut down the size of the new mortgage. If you do decide to surrender the endowment policy immediately you could also use the premiums saved to fund a regular savings plan, investing in an Isa if you haven't already got one. If you decide to keep the endowment policy running, you could use the saving made on reducing the size of the mortgage to fund an Isa.