Endowment mortgage loans are one of the most controversial types of loans, and have received good and bad press in equal measure. If you are looking for a mortgage loan, then you should look at an endowment mortgage loan as one option. Despite these loans being quite popular, they can be complex to understand.
What are endowment loans?
The first part is an interest-only mortgage loan that works like any other mortgage of this type. However, combined with this is an endowment policy that you set up and mature in order to pay off the mortgage at the end of the loan term. The policy is set up to grow enough to pay off the amount you borrow.
Benefits of an endowment loan
This can reduce the cost of your mortgage loan whilst still keeping your payments low.
Pitfalls of an endowment loan
Although the interest-only loan will reduce your monthly payments, paying off only the interest means you are paying money without reducing your debt in any way. And you are still paying money into an investment fund so your monthly payments are more than just the interest. Many people are finding themselves in a situation where there is a shortfall in the policy and they are unable to pay off the mortgage in full.
repayment loan
The major alternative to an endowment loan is the traditional repayment loan, where you pay off the loan and interest each month until the entire amount is repaid. However, during times when inflation is increasing an endowment loan is a good idea, as the risk is reduced and you can benefit from lower payments each month.
These are usually associated with mortgages. They have recently come under criticism because returns are lower than were expected a few years ago and some holders are being notified that their policy is now unlikely to produce enough money to pay off the mortgage when it becomes due.
To spread the risk, you can invest in second hand endowments via a specialist investment trust.
Maximum investment plans
This is a fancy name for what is actually an endowment policy do not be deceived into thinking it is something else.
Independent financial advisers and stockbrokers offer broker funds to their clients. These are investments in the funds of a life assurance company where the broker makes the allocation over the individual funds for you.
Originally investments were 'fettered' to the funds of the chosen life company, which meant they were akin to 'fund of funds' investments, except that there the life company makes the allocations.
However, many are now 'unfettered', i.e. they permit investment in other life companies' funds, unit trusts and even individual shares.
The advantage claimed for broker funds is that the IFA/broker has extra expertise in the allocation decision, enough to more than compensate for the higher costs (but costs are not necessarily doubled because there will be some discounting of costs between the two parties).
Read more detailed reviews at legal and general endowment, yale university endowment, and endownment policies
What are endowment loans?
The first part is an interest-only mortgage loan that works like any other mortgage of this type. However, combined with this is an endowment policy that you set up and mature in order to pay off the mortgage at the end of the loan term. The policy is set up to grow enough to pay off the amount you borrow.
Benefits of an endowment loan
This can reduce the cost of your mortgage loan whilst still keeping your payments low.
Pitfalls of an endowment loan
Although the interest-only loan will reduce your monthly payments, paying off only the interest means you are paying money without reducing your debt in any way. And you are still paying money into an investment fund so your monthly payments are more than just the interest. Many people are finding themselves in a situation where there is a shortfall in the policy and they are unable to pay off the mortgage in full.
repayment loan
The major alternative to an endowment loan is the traditional repayment loan, where you pay off the loan and interest each month until the entire amount is repaid. However, during times when inflation is increasing an endowment loan is a good idea, as the risk is reduced and you can benefit from lower payments each month.
These are usually associated with mortgages. They have recently come under criticism because returns are lower than were expected a few years ago and some holders are being notified that their policy is now unlikely to produce enough money to pay off the mortgage when it becomes due.
To spread the risk, you can invest in second hand endowments via a specialist investment trust.
Maximum investment plans
This is a fancy name for what is actually an endowment policy do not be deceived into thinking it is something else.
Independent financial advisers and stockbrokers offer broker funds to their clients. These are investments in the funds of a life assurance company where the broker makes the allocation over the individual funds for you.
Originally investments were 'fettered' to the funds of the chosen life company, which meant they were akin to 'fund of funds' investments, except that there the life company makes the allocations.
However, many are now 'unfettered', i.e. they permit investment in other life companies' funds, unit trusts and even individual shares.
The advantage claimed for broker funds is that the IFA/broker has extra expertise in the allocation decision, enough to more than compensate for the higher costs (but costs are not necessarily doubled because there will be some discounting of costs between the two parties).
Read more detailed reviews at legal and general endowment, yale university endowment, and endownment policies
About the Author
Read more detailed reviews at http://theendowmentpolicy.com
