Endowment Mortgages - UK Advice, Plans and Policy

Endowment mortgages used to be the most popular type of interest-only mortgage in the UK - but their poor performance in recent years has seen the popularity of these plans and policies decline, amongst both consumers and advice consultants alike.

What is an endowment mortgage?

Essentially it is a life assurance policy, which means that the mortgage will be settled by the plan provider should you die, but it is also a long-term savings scheme with funds being invested on the stock market.
Click here for info on FSA regulations in the UK.

How does the mortgage work?

Fixed payments, which are calculated based on the term and amount of the loan, are paid into the policy along with a monthly fee to cover the interest charges on the mortgage. When the mortgage term is complete and the endowment policy matures, the investment is intended to pay off the mortgage balance.

The performance of this kind of investment depends heavily on external market conditions, and growth cannot be guaranteed. Therefore you cannot be certain that enough money will be generated to pay off the mortgage in full. Cashing-in an endowment policy early could result in you losing money, mainly because payments in the first few years are used to cover administration costs and expensive broker fees. It is therefore highly recommended that you seek financial advice if you are considering doing this.

Main advantage: also provides life assurance cover.

Main disadvantage: there is no guarantee that the endowment will cover the mortgage when it matures.

© AskFinancially.com 2008

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