With an endowment mortgage the borrower pays a monthly interest charge to the lender and an additional agreed amount into an endowment. Endowment mortgages use stocks and shares as vehicles for investment. This means that when interest rates are high and stocks are producing high returns endowments are usually good investment vehicles.
However when the stock market is not producing good returns endowment mortgages may produce a shortfall. If this happens the borrower will have to make up the shortfall using funds generated elsewhere. In other words endowment mortgages hold a level of risk that you don’t get with repayment mortgages. This is why endowment mortgages have had a lot of press coverage in recent years.
Many endowment policy holders in the UK have claimed that their endowments were ‘miss-sold’ to them. Some endowment mortgage holders may have not been properly informed of the risks associated with their investments. In some cases borrowers have been liable for compensation.
For more information on miss-sold endowments visit
www.fsa.gov.uk.
