What Is an Endowment Mortgage?

by Daniel Tolliday

Overview

Put pennies into your piggy bank

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Endowment mortgages are comparable to mortgage loans. The only difference is that they are executed on an interest-only basis where the capital is projected to be reimbursed by lower-cost policies.
Uses

The term "endowment mortgage" is used mostly in the United Kingdom by lenders and buyers. It is not considered to be a legal expression.

History

Prior to September 2002, endowment policies were taken as supplementary protection by bank lenders. The person loaning had two separate contracts.
Borrowing Amount

The majority of lenders offer standard terms for an endowment mortgage. Depending on lender guidelines, they might let you borrow in larger sums.
Advantages

If an endowment mortgage produces a positive outcome, the endowment aspect of the mortgage will give you more than you actually need to repay the capital. According to the Financial Services Authority of the United Kingdom (FSA), if it doesn't work out, there is also the option of trading.
Disadvantages

Sometimes trading can also be a drawback. The FSA noted that up to March 2003, there were 250,000 complaints resulting in £225m worth of payouts.

Overview