The Benefits And Pitfalls Of An Endowment Loan

The Benefits And Pitfalls Of An Endowment Loan



The Benefits And Pitfalls Of An Endowment Loan
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 .​
If you​ want to​ know more about the​ benefits and pitfalls of​ an​ endowment loan,​ then here are some useful tips to​ help you.
What are endowment loans?
Endowment loans are a​ type of​ mortgage that comprises of​ two parts .​
The first part is​ an​ interest-only mortgage loan that works like any other mortgage of​ this type .​
However,​ combined with this is​ an​ endowment policy that you​ set up and mature in​ order to​ pay off the​ mortgage at​ the​ end of​ the​ loan term .​
The policy is​ set up to​ grow enough to​ pay off the​ amount you​ borrow.
Benefits of​ an​ endowment loan
The major advantage of​ an​ endowment loan is​ that you​ have very low monthly payments,​ like you​ would have for an​ interest-only loan .​
However,​ there is​ an​ added bonus in​ that you​ are investing in​ a​ savings policy that will pay off your mortgage loan .​
This means you​ are saving on​ your monthly payments as​ well as​ spending your money wisely by investing in​ a​ policy to​ pay off your mortgage .​
This can reduce the​ cost of​ your mortgage loan whilst still keeping your payments low.
Pitfalls of​ an​ endowment loan
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 .​
And you​ are still paying money into an​ investment fund so your monthly payments are more than just the​ interest .​
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.
Endowment vs .​
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 .​
The key as​ to​ whether an​ endowment policy is​ right for you​ depends on​ the​ current market and how willing you​ are to​ risk the​ policy falling short of​ the​ full loan repayment amount.




You Might Also Like:




No comments:

Powered by Blogger.