Endowment Mortgages
What is an endowment mortgage? An endowment mortgage is a kind of interest only loan. The usual terms of a standard mortgage are applied to an endowment mortgage, but the borrower has to pay the mortgage lender interest. The interest does not include other rates usually found in a mortgage or any additional rates the lender and borrower have agreed on. Endowment mortgages are widely known, but are frowned upon by most borrowers.
For the duration of the loan, the borrower makes payments in to an endowment fund. This fund is invested in shares or stocks. At the end of the loan, the investment is cashed-in to pay the mortgage. An endowment mortgage may seem somewhat complicated, but the idea is relatively simple. In fact, an endowment mortgage is the simplest of all mortgage types.
Disadvantages of Endowment Mortgages
A clear disadvantage of an endowment mortgage is once the loan does not work out, the borrower will be entirely responsible, and the endowment fund cannot be used to pay off the loan. The stock market’s tendency is to be lethargic, especially nowadays, the market has caused a lot of people to shy away from endowment mortgages. Because of this, endowment mortgages are receiving bad publicity worldwide.
Advantages of Endowment Mortgages
One good thing about endowment mortgages is that throughout the time of the loan, your monthly payment, which is the rate of interest, will be reasonably low. The endowment fund that is paid in to will be working in your favor. When the stock market is not doing so well, a mortgage lender can give the borrower an option to withdraw from the fund and invest in other saving plans.
You won’t gain as much in the endowment fund, but at least your investment is safe. Depending on the agreement between the two parties, the mortgage lender can allow the borrower to switch the endowment mortgage to a standard repayment mortgage when and if necessary. These conditions must be agreed upon by both parties before the loan is completed to avoid any misgivings.
When should you opt for an endowment mortgage? Endowment mortgages are ideal when the interest rates are at a low. This is also perfect if you earn a large amount of money because the tax reprieve will be maximized. Choose an endowment loan if you anticipate your earnings to swell in the near future. Dont opt for an endowment mortgage during a recession, because you might have to increase you monthly payments just to meet your loan deadline.
Research Endowment Mortgages
If you are well organized, especially in the financial market, endowment funds are a good way to pay your mortgage. As in any other investment, it is essential to keep a close eye on your capital in endowment mortgages. Before you venture into this form of mortgage, carry out research about endowment mortgages on the internet or use a mortgage broker that can give you advice. Ask people with knowledge and experienced with endowment mortgages.
