With a repayment
mortgage (also known as a capital and
interest loan) each monthly payment includes part of the capital
the original amount you borrowed as well as the interest owed
for that period.
This ensures everything is paid off at the end of the mortgage
term.
With an interest-only mortgage, you are repaying just the interest
and need some other way of clearing the remaining debt.
that's where the endowment part of this package comes in.
An endowment policy is a type of stock market investment
which runs alongside your mortgage.
You make a monthly payment into this policy, and the idea is that
the value grows substantially, so that at the end of the mortgage
term, you are able to pay off the outstanding capital.
The hype
These mortgages were extremely popular back in the 80s and 90s,
when it was believed they offered a sure-fire way to more than
clear your debt.
Investment returns were expected to be so good that
holders would have thousands maybe even tens of thousands of pounds
left over to spend on new cars, luxury holidays and all manner
of other treats.
The reality
Sadly, things didn't work out that way, and the majority of endowment
holders have been left facing nasty shortfalls.
that's why, although endowment mortgages are still available,
they are best avoided.
The only genuinely sure-fire way to ensure your mortgage
debt is cleared by the end of the term is to choose a straightforward
repayment loan and keep up the payments.
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