Endowment Mortgages

In the early 1980’s and 1990’s endowment mortgages were very popular. They were used as an alternative to the usual mortgage payments. This type of mortgage sees the borrower making repayments that cover the lender interest costs only whilst at the same time contributing to a separate endowment policy that is designed to mature to the value of the loan capital at the end of the mortgage term. In other words the part of the monthly payments that were used to invest should at the end of the term, have made enough money to pay back the original amount borrowed.

Endowment mortgages have been found to be risky as the final amount in the endowment is often not guaranteed. Endowment policies meant that a certain amount of money could be invested in a booming stock market.

People hoped that their investments would bring good returns and also the fact that life insurance was included gave people less to worry about. It was hoped that these policies would help to pay off the mortgage capital and even make a little extra money at the end of their term. It was believed that this was possible and that investments would make a healthy sum.

For many endowment mortgage holders things haven’t gone well. Many have been told that their policy will not make enough money to pay off their mortgage capital with an average shortfall of anything from 4% to 8%. This amount still has to be made up by the borrower somehow.

ISA Savings accounts have been opened up these are of less risk, one being. ISA Mortgages work in a similar way but they are more effective and have become the more popular choice for people wanting an investment type of mortgage.

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Related glossary terms to Endowment Mortgages:
Adverse Credit | Endowment Mortgages | Bad Credit | Term | Guarantor | Negative Equity | E-Commerce