Endowment Mortgage

In the 1980s and for a good part of the 1990s many home buyers were offered the option of taking out an endowment mortgage. The idea sounded good in princiapal. The idea behind them is simple and they were sold that way. You buy property, put down what deposit you can and borrow the rest. Simply pay back the interest and at the end pay off one lump sum to cover the cost of the loan.

In order to do this borrowers would make payments into a savings account that would invest in stocks and shares with the aim of not just meeting the lump sum payment at the end but also provide a cash surplus. But what happens when the investment doesn't perform too well ? Many people were then left with a home loan and a huge amount owing but perhaps no means of paying it off let alone any surplus to spend as they like. Over the last few years the returns on stocks and shares have not been as good as many people had hoped.

It has been said that the sales people were on commission to sell endowment mortagages and usually got paid more to offer these policies than other forms of borrowing to buy a home. The result was that endowments were sold as the best way to pay off your home loan. In the late 1980s, over 80% of mortgages sold were endowment, compared to just a third a decade later.

Not much information was provided to the negative aspects of an endowment as sales hungry sales people emphasised that endowments were a way to borrow money, pay it off and even have a surplus amount of money to spend as you want.

Traditional repayment loans where each month a borrower is paying off both interest and the amount they borrowed were said to be the wrong way to borrow as the endowment provided great rewards, albeit the risks associated with them were not always emphasised. Taking out an endowment mortgage today is not easy. Many lenders have now stopped selling them due to the poor performance and negative publicity surrounding them.

Endowment Mortgage :