Endowment Mortgages

Endowment Mortgages



Endowment Mortgages
What is​ An Endowment Mortgage?
An endowment mortgage,​ in​ theory,​ is​ supposed to​ lower your mortgage payment .​
Ideally,​ endowment mortgages are much cheaper than standard mortgage policies such as​ repayment mortgages .​
When you​ get an​ endowment mortgage,​ you​ pay only the​ interest on​ the​ amount borrowed .​
in​ addition to​ this,​ you​ pay an​ addition small sum into a​ policy that is​ supposed to​ be ever-increasing: the​ endowment policy .​
This policy is​ supposed to​ grow and grow,​ and at​ the​ end of​ the​ mortgage term you​ use this money to​ pay off your capital.
The customer pays only the​ interest on​ the​ capital borrowed,​ thus saving money with respect to​ an​ ordinary repayment loan; the​ borrower instead makes payments to​ an​ endowment policy .​
The objective is​ that the​ investment made through the​ endowment policy will be sufficient to​ repay the​ mortgage at​ the​ end of​ the​ term and possibly create a​ cash surplus.
- Endowment Mortgages,​ Wikipedia,​ June 2018
Endowment mortgage is​ actually not a​ legal term .​
This type of​ mortgage policy was popular in​ the​ 1980s,​ especially in​ the​ UK,​ but natural fiscal problems and stock market lows made many of​ these policies practically worthless .​
An endowment mortgage is​ always going to​ be hit or​ miss .​
When they work,​ they really work well .​
When they don’t work…then,​ things aren’t so great.
With an​ endowment mortgage,​ the​ borrower only pays the​ monthly interest to​ the​ lender while investing an​ additional monthly sum into a​ policy that is​ usually invested in​ equities .​
The theory is​ that this endowment policy should grow sufficiently,​ with long-term share price rises,​ over the​ course of​ the​ mortgage (usually 25 years) that the​ capital debt can be repaid at​ the​ end of​ the​ term.
- Q & A: Endowment Mortgages,​ Business Times Online,​ June 2018
And If Things Go Wrong With My Endowment Mortgage?
With an​ endowment policy,​ you​ lay yourself open to​ the​ vagaries of​ the​ stock market and the​ competence of​ the​ policy manger .​
You must also closely monitor the​ performance of​ your policy to​ make sure you​ are contributing enough.
- Q & A: Endowment Mortgages,​ Business Times Online,​ June 2018
Let’s say,​ for instance,​ that you​ get an​ endowment mortgage .​
This type of​ mortgage has been getting more and more attention recently,​ and some consumers are starting to​ think it​ might just be a​ good idea again .​
So you​ get an​ endowment mortgage and start paying off your interest regularly .​
With equal regularity,​ you​ deposit a​ certain amount of​ dollars into your endowment policy .​
Only,​ the​ stock market doesn’t do so well .​
Stocks are low,​ the​ economy takes a​ plunge .​
Twenty-five years go by,​ and you​ discover that your endowment policy does not have enough in​ it​ to​ pay off your capital .​
All your interest has been paid,​ quite nicely,​ for two and a​ half decades,​ however .​
So,​ what about that capital loan that needs to​ be paid off?
You’d better find a​ way to​ pay it​ off…somehow.
The underlying premise with endowment policies being used to​ repay a​ mortgage is​ that the​ rate of​ growth of​ the​ investment will exceed the​ rate of​ interest charged on​ the​ loan .​
Towards the​ end of​ the​ 1980s when endowment mortgage selling was at​ its peak,​ the​ anticipated growth rate for endowments policies was high (7-12% per annum) .​
By the​ middle of​ the​ 1990s the​ change in​ the​ economy towards lower inflation made the​ assumptions of​ a​ few years ago looks optimistic.
- Endowment Mortgages,​ Wikipedia,​ June 2018
When you​ took out your mortgage with an​ endowment policy,​ the​ aim was that the​ policy would grow in​ value .​
However,​ as​ the​ value of​ most policies is​ linked to​ the​ performance of​ the​ stock market there is​ usually no guarantee that the​ policy value will be sufficient to​ repay the​ mortgage at​ the​ end of​ the​ mortgage term.
- Consumer Information,​ FSA,​ June 2018




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