Endowment mortgage loans are one of the most controversial types of loans, and have received good and bad press in equal measure. If you are looking for a mortgage loan, then you should look at an endowment mortgage loan as one option. Despite these loans being quite popular, they can be complex to understand.
What are endowment loans?
The first part is an interest-only mortgage loan that works like any other mortgage of this type. The policy is set up to grow enough to pay off the amount you borrow.
As well as benefits there are also pitfalls to an endowment loan. Although the interest-only loan will reduce your monthly payments, paying off only the interest means you are paying money without reducing your debt in any way. Also, the investment fund is designed to pay off the mortgage loan in full, but this is by no means guaranteed. Many people are finding themselves in a situation where there is a shortfall in the policy and they are unable to pay off the mortgage in full.
repayment loan
The major alternative to an endowment loan is the traditional repayment loan, where you pay off the loan and interest each month until the entire amount is repaid. These types of loan carry higher monthly payments, and are a safer option than endowment loans. However, during times when inflation is increasing an endowment loan is a good idea, as the risk is reduced and you can benefit from lower payments each month.
These are usually associated with mortgages. They have recently come under criticism because returns are lower than were expected a few years ago and some holders are being notified that their policy is now unlikely to produce enough money to pay off the mortgage when it becomes due.
There are with profits and unit linked varieties, the only difference being a terminal bonus in the case of with profits, which should be substantial.
There is a market in second hand endowment policies and these can be a good investment.
As the life assurance element continues on the life of the original investor, you can get an earlier pay out if that person dies but you need to keep in touch in order to find out if it happens.
To spread the risk, you can invest in second hand endowments via a specialist investment trust.
This is a fancy name for what is actually an endowment policy do not be deceived into thinking it is something else.
Broker fundsIndependent financial advisers and stockbrokers offer broker funds to their clients.
Originally investments were 'fettered' to the funds of the chosen life company, which meant they were akin to 'fund of funds' investments, except that there the life company makes the allocations.
However, many are now 'unfettered', i.e.
The advantage claimed for broker funds is that the IFA/broker has extra expertise in the allocation decision, enough to more than compensate for the higher costs (but costs are not necessarily doubled because there will be some discounting of costs between the two parties).
Read more detailed reviews at
legal and general endowment,
yale university endowment, and
endownment policies
