Endowment mortgage paying out soon. What next?

For our first house purchase in the 90’s we were talked into getting an endowment mortgage. When upping our mortgage for our second house we were advised to keep the endowment running and borrow the rest as a repayment mortgage. Our current mortgage has about 20 years to run but the endowment part ends in a couple of years time. So, as a rough model, if our total mortgage is £170k but the endowment part is £40k does that just come off our mortgage in a couple of years time making our total to pay £130k, so lessening our mortgage payments? Sorry if this makes no sense.

It depends upon how much the endowment actually pays out.
If you took out a £40k loan, I guess that the scheming bastids advisors will have told you that the investment would pay you (say) £80k. It might actually be a lot less. Call to ask for a current projection.
The idea was that the endowment would pay off your mortgage and a bit more, so at the end of the term, you still owe £40k but you’ll have a lump sum to pay it off with and have more to play with. BUT the lump sum might be less than £40k so you might need to find some extra cash fro melsewhere.

Yes. The endowment pays you direct and you pay it to the bank, they’ll probably write to you at least 3 months in advance of it ending. You can choose to switch it to repayment and keep your endowment proceeds for a treat.

When you get the cash you can spend it one what you’d like, paying some of the mortgage would be a good idea but only after you’ve paid anything else with a higher cost.

choppersquad, you need to have a good loom at your mortgage statement!
I’m assuming that your ‘endowment part’ is an interest only mortgage. When that ends, it needs paying – hopefully your maturing endowment policy will cover that?
If so, your mortgage will become the repayment part only.
You should have a bit more cash each month because you’ll not be paying the interest only mortgage or the endowment premium any more; that money could be put towards the repayment mortgage in an effort to clear it earlier – or it could be blown on…….

You’re right Moses. We were enticed in by promises of it performing so well we’d be able to pay it off early and maybe have a bit left over. The reality is that it is well short, and will probably only pay out £40k even though it was for £66k. Luckily the endowment part is only about a third of our mortgage and the total mortgage is only around a third of our house value. I was just a little confused about what to do when it matured and whether I’d be in the brown stuff if I didn’t take out further payments to top it up now?

Some endowments are open ended, you might not have to take it. Could be an option if you think investment income will be higher than your interest on that part of the capital, to either just leave it to continue to accrue investment income, or to continue paying into that policy and continue to build both investment and the interest on it.

If in doubt, seek advice. I am not an IFA, but had this option with one of mine (although that was a free standing investment policy assigned against my mortgage rather than an actual endowment mortgage)

We had this. The endowment was performing really badly and they advised us to up the payments. We didn’t and, when we moved house a few years later, we had a big sort out, paid off the interest only mortgage on the original house and added the cost of doing so to a repayment one on the new house.

The endowment yielded, in cash terms, just about the same as the amount we’d put in over 17 years. Allowing for inflation, that’s a pretty poor investment.