Endowment mortgage is a type of mortgage where you need not pay the principal amount you have borrowed from the lender, during the term of the loan, you would be paying only the interest and as well as the premium for the endowment policy you have taken. The endowment policy grows large enough at the end of the mortgage period normally 25 years for the repayment of the mortgage loan. Within this package you would also be paying the life insurance that will repay the loan incase if you die as there is no guarantee for your endowment policy to pay off your mortgage.
The endowment policy has two parts in it, a life cover part and an investment part, in life cover part it would pay off your mortgage debt incase if you die during policy, and in investment part it will repay your mortgage when the policy get ended up if you live till the policy ends up. But this part is not guaranteed as people find the endowment policy is not in track and not sufficient enough to pay the mortgage debt at the end of the policy or mortgage , and this leads to think about the other laternatives to make up the amount, due to this endowment mortgages are not so popular as the other mortgages.
With endowment mortgage you pay only the interest and the principal will remain the same, if the endowment policy would perform well it will pay off the mortgage debt at the end, incase if the endowment policy does not perform good it will leave you with the huge amount of debt to settle.
You may receive a letter from the endowment company that would tell you that you policy is not in track and so there is not sufficient fund for the repayment of the mortgage at the end of the policy, by seeing this letter you should not delay taking further action, you should not get worried and make any hasty decision, first you should check the facts, don’t cash in your policy, don’t ignore it at the same time as things would go worst if you don’t act immediately, you should think about the other options to make up the shortfall by switching the amount of shortfall for the repayment of mortgage, or asking the lender to convert the endowment loan to other type of loan where you can repay the principal with interest, or starting an additional saving to make it up the shortage, or you can plan to extend the endowment mortgage term or you can opt for top up of the endowment plan.
On top of everything you take up the advice of your financial advisor, or discuss the status with your lender
David is the owner of Loan Lenders, and Finance Basics websites. David provides great resources for people seeking information regarding loans, mortgages and remortgages.
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