Endowments
Endowments were mainly used with Interest Only mortgages, so we will concentrate on their use in this way as far as this section is concerned.
With a Repayment Mortgage, your monthly mortgage payments gradually pay off the amount you borrowed (the capital) as well as the interest charged over the term.
With an Endowment Mortgage, your monthly mortgage payments only cover the interest charged, therefore meaning the original amount borrowed remains the same and never reduces. At the end of the term the capital is repaid using the proceeds from an endowment policy.
Endowments have 2 key components:
- Investment:
An endowment policy is an investment plan that you usually pay into each month. Your money is invested – for example in shares or bonds – with the aim of making it grow enough to pay off the original loan when the mortgage term ends. However, as investments can vary in value, there is usually no guarantee that the policy will pay out enough to repay the mortgage at the end of the term.
- Life Assurance
The life assurance part has a sum assured equal to the mortgage amount so that in the event of the life assured dying with in the mortgage term, the remaining mortgage balance will be fully repaid.
If you have an endowment mortgage and are worried, don't make any hasty decisions. Check the facts first. Never cash in your policy or stop your payments without taking proper advice. You could lose out if you do.
