Endowment Mortgage

An endowment mortgage is a type of interest-only mortgage. Interest-only mortgages work by allowing the borrower to only pay monthly interest on the capital sum and repay the capital sum at the end of the mortgage term.

Because normally, you should have a provision for the payment of the capital sum at the end of the mortgage term some mortgage lenders offer a side investment or saving scheme alongside the interest-only mortgage.

One such mortgage with a investment plan attached is the endowment mortgage. The endowment mortgage offers a stock market investment plans for the investment of the capital sum installments that is intended to pay off the mortgage at the end of the term.

This type of mortgage was popular in the 80’s and 90’s when stock market predictions were optimistic. The problem back then was that actual performance fell short of predictions and many came up short at the end of the mortgage term.

The same danger exists now and constitutes the main disadvantage of this particular type of interest-only mortgage.