Endowments
Most mortgages today are available either on a repayment or an interest only basis or sometimes a combination of the two.
A repayment mortgage may appear to cost more than an interest only mortgage however repayments will cover both the interest on the loan and eat into the capital borrowed at the same time. A repayment mortgage does give the peace of mind that it will be fully repaid at the end of the term.
An interest only mortgage on the other hand means that repayments to the lender cover only the interest charged on the loan while a separate savings or investment scheme is set up intended to pay off the capital amount of the debt at the end of the term. The capital amount never changes during the term and it is the responsibility of the home-owner to ensure that their investment is sufficient to pay off the mortgage. |
Interest only mortgages were very popular in the 1980s and 1990s and huge numbers of investment schemes were set up to pay off these loans. Today however, repayment mortgages being sold are beginning to outnumber interest only mortgages due to poor returns experienced by investment holders.
Interest only mortgages were sometimes linked to pension schemes or Individual Savings Accounts (ISAs) but the most common investment 'vehicle' set up to cover the capital debt for interest only mortgages were endowments.
On the plus side, endowments provided an investment which included an element of life cover so the debt would be covered in the event of death before the end of the term. They also appealed for their tax-free premiums (the tax incentives no longer apply) and a bonus on maturity. Their shortcoming however, lay in dependence on volatile stock markets and inflation and it is thought that as many as 5 million endowments were sold which will not be sufficient to cover the related mortgage at the end of the term.
If you have an endowment policy that may not cover your mortgage, please click on the links to find out what the options are or complete a Mortgage Enquiry Form below and we will arrange for one of our specialist mortgage advisers to contact you for independent help and financial advice. Alternatively, you can call us on 0845 108 0505.
