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How does it work?
You make two payments per month. One to the lender to repay the interest on the amount borrowed, the other to an insurance company for an endowment contract. There are mainly two types of endowment: unit linked or with profits. Both invest in a broad range of assets including stocks and shares. The capital in the endowment aims to build up over the term of the mortgage to repay the outstanding capital, although to achieve this the investment performance needs to be sufficient to build up the required capital and this performance cannot be guaranteed.
This type of repayment vehicle is flexible since:
- You can take the endowment policy with you if you move home or change mortgage lender.
- Endowments usually include some kind of life cover and some also include critical illness cover.
- If the endowment contract performs well, you may accumulate more funds than required to repay the loan.
- Endowments are not risk free as there is investment in the stock market.
- There is a possibility your fund may not have built up sufficiently to repay the capital.
- You must keep a watchful eye on your fund's performance to help prevent this happening.