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Endowment Mortgage Insurance
Before we take a look at the finer points of endowment mortgage insurance, I would like to quickly explain to you exactly what an endowment mortgage is.
The Structure Of Endowment Mortgage
An Endowment Mortgage can be a little confusing, as it consists of two products bundled together. It has three component parts: endowment insurance,a savings fund and an interest only mortgage.
Interest Only Mortgages
With this type of mortgage,you pay off the interest on the loan but no on the actual capital itself. At the end of the mortgage term you will be required to repay the full capital amount.
An endowment differs from traditional insurance policies in that it always pays out. The payment is at the end of a predetermined period or on death,whichever comes first.
If you combined endowment insurance and an interest only mortgage you end up with an endowment mortgage.
Savings funds in the context of endowment mortgages,require you to invest money over a set period of time. Your money will be pooled together with other investors and a fund manager will be responsible for making investments and increasing the overall value of the fund. If the manager does his job well you can expect an inflation beating return on your investment.
An Endowment Mortgage
With an endowment mortgage you use an endowment policy to provide life insurance and save funds to repay the loan at the end of the term which is usually set between twenty and twenty-five years.
These products come with a risk. If the investment performs badly,you could face a shortfall on your mortgage at the end of the repayment period. This was unfortunately a very real issue in the eighties and nineties.
The stock market was flying at record levels and having your mortgage linked to it was very appealing. High street lenders were therefore heavily marketing these types of mortgages.
In many cases the lenders were only promoting the possible benefits,failing to mention the risks.
As of late the lion share of information on Endowment Mortgage Insurance seems to be about them being mis-sold.
If you can relate to this, Money Saving Expert offers a great guide
These mis-selling practices were widely covered in the press and resulted in a drastic decline in their popularity. This has resulted in relatively few people going down the endowment mortgage route
For those of you interested in digging a little deeper, I managed to dig up an interesting 2004 prime time documentary exploring theses issues.
I hope that we’ve managed to shed some light on the finer points surrounding Endowment Mortgage Insurance. If you have any further questions please feel free to get in contact with me.
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