Mortgage Information - Endowment

Endowment Mortgage tax benefits

Endowment mortgages do not any longer have any tax benefits, till recently it was the most common type of interest only mortgage, which also provides life assurance so that in the event of death the mortgage is paid off in full. Fixed payment for investment. The fixed payments are based on the amount of the loan together with the mortgage term and are designed so that, at maturity, the amount invested and earnings are sufficient to pay off the remainder of the mortgage. Their has been a lot of bad press because of the poorer investment growth rates achieved in a low inflationary environment this form of investment is less popular these days. Note there is no guarantee that, when the endowment matures and 'pays out', the balance will be sufficient to repay the mortgage.

More than 50 percent of people taking out a mortgage would have chosen an endowment mortgage, but at the time endowment mortgages had many advantages that made them highly suitable for many people. As a rule they should not be cashed-in early and certainly not before seeking advice from a suitably qualified financial adviser please call 0845 108 0505. Customer's cashing-in an endowment policy in the first few years after inception can receive less than the amount invested. Existing endowments can be used to support a new mortgage with any 'additional lending' over the value of the projected maturity balance being covered on a repayment basis or with an alternative repayment vehicle e.g. an ISA. It is also worth pointing out that historically the returns on endowment policies have been pretty good but you do need to let them run the full term.

Stopping the endowment policy or cashing it in may involve hefty penalties.

Many people with endowment mortgage may wish to consider switching to a repayment mortgage and if you wish to consider this it is recommended that advice should be sought. For a free initial consultation please complete the quick enquiry form for a specialist mortgage advisor to contact you.

Low cost Endowment Mortgage

This consists of an interest only mortgage linked to an Endowment savings plan, if the endowment policy increases at a sufficient rate then it is expected that the policy will generate enough capital to pay off the loan at the end of the mortgage term, however this is not always the case.

The Association of British Insurers (ABI) introduced a code of practice, which took effect from September 1999, which required an endowment mortgage policy provider to regularly review the policy.
The objective of the review is to analyse whether the policy is likely to be worth enough by the end of the mortgage term to pay off your loan in full.

Under the code of practice, the first policy review should take place by:
1. The tenth anniversary of the policy
2. Half way through the Policy term
3. Ten years before maturity

After the first policy review the rest should take place at least every five years. If the review shows that the endowment policy is unlikely to pay off the mortgage, you may be advised to increase the amount you save each month, which can be carried out by increasing the premium paid into the endowment policy. It is not essential that extra savings are paid into the endowment policy another separate investment can be taken out, such as an ISA.