Endowment Mortgages

The concept of an endowment mortgage is that the interest payments, capital repayment through investment and life cover requirement can be wrapped up in one product. However they are in fact two product. The first is in the form of an Interest Only Mortgage as described previously, arranged via a bank or building society.

The second part is an endowment policy arranged via a life insurance company, in some cases affiliated to the lender but still a separate company. The endowment is written for the same term as the mortgage loan, usually 25years in the case of a new mortgage loan. The product is then designed to run alongside the mortgage loan approximately reflecting the reducing life cover requirement as the policy increases in monetary value. An endowment policy itself is made up of two parts.

Firstly it offers a vehicle for investment, designed to accrue enough monetary value to repay the mortgage loan over the set term. Secondly it also includes a decreasing sum assured to repay the mortgage loan in the event of death.

The sum assured aspect of the endowment policy is relatively straight forward. However those choosing to exercise this option should be aware that the investment aspect of the policy is not to be taken lightly and can not be considered as a guaranteed vehicle for repayment of the mortgage loan.

The average person using this method of repayment will be offered a myriad of differing areas of investment from low to high risk. Recently due to low Stock Market performance many endowment providers have announced that endowments products held by homeowners may under perform and will not have sufficient funds to repay many homeowners mortgage loans. Due to this fact and the subsequent adverse media coverage far fewer homebuyers are opting to use this method of mortgage loan repayment planning.

However any person planning to use this method should seek professional investment advice from a qualified Independent Financial Advisor.

 

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