To pay off a mortgage on a house by way of an investment, endowment policies can be linked to mortgages. Designed as monthly savings plans, endowment mortgages are intended to pay off a home loan (i.e. the capital) in one lump sum at the end of a fixed term, usually by investing in shares and/or property. The monthly mortgage payments are therefore on an interest only basis paid to the endowment mortgage lender, in addition to a monthly premium on the endowment policy which is invested to produce enough capital at the end of the term.
As endowment mortgage policies usually take the form of life insurance, as part of the package, life insurance also has to be paid which will repay the loan in case of death.
Endowment Mortgage Maturity
After a certain term (most commonly 25 years, though this can be varied according to the borrower’s needs) the mortgage endowment policy is expected to mature and subsequently used to pay off the mortgage. At this point, home buyers are occasionally told that the policy may leave them with an additional lump sum after mortgage redemption from any interest accumulated – one of the reasons why endowment mortgages have been popular in recent decades.
Endowment Mortgage Shortfalls
However, due to years of falling value, there is no guarantee that the person taking out the mortgage will have sufficient funds in their policy to pay it off upon the maturing of the endowment policy; indeed millions of existing policies are now unlikely to reach their target sum when they mature, with the mortgage holders facing debt and possible repossession of the property.
Endowment mortgage shortfalls are therefore not unexpected. If this happens, financial experts advise to keep the endowment policy, but split the mortgage so the amount covered by the endowment is reduced, and borrow the rest by means of a repayment mortgage, i.e. part endowment and part repayment mortgage, with the latter being sourced from suitable mortgage brokers or mortgage lenders.
Another alternative when handling such endowment mortgage shortfalls is by selling endowments to companies that deal in traded endowments. Whereas cancelling an endowment policy before it matures almost always means a loss of money, specialist companies are often willing to pay a substantial amount if the borrower sells them such a policy. An endowment policy calculator is particularly useful to assess whether an investment is attractive to second-hand buyers, and often beats the surrender value quoted if the borrower is considering cancelling the policy.
Mis-Sold Endowment Mortgages
Many people are mis-sold endowment policies because the particular policy they are sold is not suitable for them. Specifically, if the person taking on the mortgage was not informed of the risks associated with combining an endowment policy with a mortgage, and they have lost out financially as a result (including any mortgage fees paid), there may be strong grounds for complaint.
Endowment Mortgage Claims
Endowment mortgage claims are an essential step for such borrowers as they may be entitled to endowment compensation. If a borrower has an endowment mortgage and is worried about this, a number of conditions have to be satisfied before a claim is made. A mis-sold endowment mortgage usually means that not only did the endowment underperform, but also that the borrower wasn’t told that it may not perform well enough to pay off their mortgage: this has to be proved for them to qualify for endowment mortgage compensation.
Nevertheless, there may be also occasions when the investment growth rate exceeds what is estimated from the outset, and so the borrower may be able to pay off their mortgage a great deal earlier would be the case with more standard types of mortgage such as repayment mortgages or offset mortgages.