Endowment Mortgages
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Are all endowment policies the same? No. They fall into three main categories. First, there are expensive full endowments that guarantee that your loan will be met, come what may. Secondly, there are low-cost endowments. These cheaper policies ensure that your mortgage will be repaid if you die before the end of the mortgage term, but they do not guarantee that their value will be sufficient to meet your outstanding loan at the end of its term. Thirdly, there are low-start mortgage endowments where premiums, usually in the five years, are kept low. But thereafter, premiums rise. The idea behind some endowment mortgages is that they help first-time homebuyers at a time when money is tight. However, such endowment mortgages are rarely sold these days, have a bad reputation and can provide a nasty payment shock when the low-start premiums are replaced by fulll-blown premiums. Avoid like the plague. The most popular type of low-cost endowment has been the with-profits policy which attracts annual (or reversionary) bonuses depending on the insurance company's investment performance. Falling bonus rates in recent years mean that many homeowners face a worrying potential shortfall in the value of their with-profits endowment mortgage. Some have increased their premiums to ensure that such a situation does not occur. |