Endowment Mortgages (Interest Only Mortgages)
With an endowment mortgage (or interest only mortgage) your monthly repayments to the lender only consist of interest and the debt is not repaid until the end of the term. Monthly repayments are consequently lower than with a repayment mortgage.
However in addition to the monthly payment to the lender you are required to take out an endowment policy to repay the mortgage at the end of the term. This payment known as the premium is split between a life insurance policy and an amount invested in investment funds. Over the years these funds attract capital growth so that by the end of the term they should have grown sufficiently to repay the debt.
The final sum is not guaranteed and depends on the skill of the fund managers and the performance of the fund. The fund is liable for regular reviews and if there is likely to be a shortfall you will be expected to increase the endowment or alternatively make other arrangements for repaying the shortfall.
Because of this uncertainty the repayment mortgage is by far the most popular.
