Endowment Mortgages

What is an endowment home mortgage?
On all home mortgages there are two charges that must be paid off, the initial capital of the loan (i.e. the original cash that was lent) and the interest charged on that money. Endowment home mortgages use an insurance (endowment) policy to pay off the initial capital lent and the interest portion separately.

Endowment home mortgages were very popular in the 1980’s and 90’s when the stock markets were buoyant, in recent times however they have not been so popular. The reason for this is the financial institution which runs the endowment policy will invest the capital from the endowment on the stock market, thus making money from that capital meaning that after 25 years (the normal term of a home mortgage) the endowment can be cashed in and the mortgage money repaid.

So why are endowment home mortgages not so popular now?

The stock market is much more volatile at present. The endowment policies issued at this time offered unrealistic projections as to how much money the invested capital would realise. In real terms this means that after paying into endowment policies for 25 years, people who have these types of home mortgage have got to find yet more money to repay the money borrowed.

On the positive side many people who have endowment home mortgages have been able, with a buoyant stock market, to repay their mortgages early.

The real question that needs to be asked with regard to endowment home mortgages is how important is it to the individual person.