Endowment Policy and Interest Only Loans

Endowment mortgages are actually interest only mortgages but with an assurance policy attached.It was introduced to reduce payments but today it is proving otherwise.

(PRWEB) February 18, 2005 -- Endowment mortgages were very popular in the 1980s and the 1990s but today the popularity is decreasing. You would like to know what has really happened.

Firstly, let us find out, what an endowment policy really is?

After you take a mortgage you are asked to make a monthly repayment. This can be carried out in two ways-
• Repayment method- The name may seem misleading because both are payment methods. Actually this is the most common method opted by borrowers. It involves the payment of a part which goes into repaying the loan amount or the principal and the other, the interest part to the lender.

• Interest-only method- The borrower only pays the interest to the lender. The usual practice is to save the rest into a savings scheme which will keep growing with time. This is known as endowment mortgage. Actually this is one way to ensure the full repayment of the amount at the end of the term. You can also get a lump sum amount as the profit. To know more on endowments log onto:
http://www.mortgagefit.com/endowment-mortgage.html

Why have endowment mortgages become unpopular?
It is the huge risk involved which has deterred people from opting out. While the repayment method gives you a 100% guarantee that you will repay the loan, the endowment is dependent on the market. Your mortgage is sold in the form of stocks and shares and the stock market is extremely volatile. If the rates of the saving account go down, you might not be able to pay back the loan in time. Thus the quest to pay less may end up being more expensive than the original repayment method.

The other factor is the premiums that you have to pay. If you stop making these regular payments in the early years of your mortgage, the en-cashable value of your mortgages falls. This results in selling the mortgage at a reduced price in the market. Thus you may even get lesser than you paid as premiums

The solution
If you have taken an endowment mortgage, keep an eye on the markets. Do not jump to conclusions, if the market is going down. You have the choice to revert to the repayment method open. But you must not go for it in early days of the mortgage. Let the mortgage continue for the total term. If you feel you need a change, consult a financial adviser before taking any steps.

Take an assurance policy along with the endowment. This will help not only you but also your family in the event of your demise.

For more information regarding mortgage and related terms, you can log onto:
http://www.mortgagefit.com

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