What is an Endowment Mortgage

An endowment mortgage is a type of interest-only loan.

With a repayment mortgage (also known as a capital and interest loan) each monthly payment includes part of the capital the original amount you borrowed as well as the interest owed for that period.

This ensures everything is paid off at the end of the mortgage term.

With an interest-only mortgage, you are repaying just the interest and need some other way of clearing the remaining debt.

that’s where the endowment part of this package comes in.

An endowment policy is a type of stock market investment which runs alongside your mortgage.

You make a monthly payment into this policy, and the idea is that the value grows substantially, so that at the end of the mortgage term, you are able to pay off the outstanding capital.

 

The Hype

These mortgages were extremely popular back in the 80s and 90s, when it was believed they offered a sure-fire way to more than clear your debt.

Investment returns were expected to be so good that holders would have thousands maybe even tens of thousands of pounds left over to spend on new cars, luxury holidays and all manner of other treats.

The Reality

Sadly, things didn’t work out that way, and the majority of endowment holders have been left facing nasty shortfalls.

(For more on this, read What went wrong with endowment mortgages?)

that’s why, although endowment mortgages are still available, they are best avoided.

The only genuinely sure-fire way to ensure your mortgage debt is cleared by the end of the term is to choose a straightforward repayment loan and keep up the payments.

To find out why, go to Should I choose repayment or interest-only?

 

 

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