Endowment Mortgages FAQ's

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FAQs - Endowment Mortgages

What is an endowment mortgage?
An endowment mortgage is essentially an interest only mortgage combined with an endowment policy. The endowment is designed to pay off the loan capital by the end of the term.

What are the advantages of an endowment mortgage?
In addition to paying off the capital of the loan, endowment mortgages offer the potential of a bonus at the end of the term. Endowment mortgages are also attractive because they contain an element of life insurance, ensuring that the mortgage is paid off if the policy-holder dies prematurely.

What are the problems associated with endowment mortgages?
Endowment mortgages were shunned by house buyers after hundreds of thousands of policy holders found that their endowments would not be sufficient to pay off the mortgage capital. In many cases, the courts ruled that the endowments had been "mis-sold" and banks paid out compensation to borrowers.

What has been done to improve endowment mortgages?
Although most home buyers are now choosing repayment mortgages, endowment mortgages are regaining some of their popularity due to tighter regulation of the market. Policy holders are now required to regular inform policy holders of the performance of their investments. Many endowment mortgages sold today are guaranteed to pay of the mortgage at the end of the term.

Who are endowment mortgages aimed at?
Because they can pay out bonuses and offer cheaper repayments than repayment mortgages, endowment mortgages can may be attractive to risk takers.

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