Endowment mortgage loans are one of the most controversial
types of loans, and have received good and bad press in equal
measure. If you are looking for a mortgage loan, then you
should look at an endowment mortgage loan as one option.
Despite these loans being quite popular, they can be complex to
understand. If you want to know more about the benefits and
pitfalls of an endowment loan, then here are some useful tips
to help you.
What are endowment loans?
Endowment loans are a type of mortgage that comprises of two
parts. The first part is an interest-only mortgage loan that
works like any other mortgage of this type. However, combined
with this is an endowment policy that you set up and mature in
order to pay off the mortgage at the end of the loan term. The
policy is set up to grow enough to pay off the amount you
borrow.
Benefits of an endowment loan
The major advantage of an endowment loan is that you have very
low monthly payments, like you would have for an interest-only
loan. However, there is an added bonus in that you are
investing in a savings policy that will pay off your mortgage
loan. This means you are saving on your monthly payments as
well as spending your money wisely by investing in a policy to
pay off your mortgage. This can reduce the cost of your
mortgage loan whilst still keeping your payments low.
Pitfalls of an endowment loan
As well as benefits there are also pitfalls to an endowment
loan. Although the interest-only loan will reduce your monthly
payments, paying off only the interest means you are paying
money without reducing your debt in any way. And you are still
paying money into an investment fund so your monthly payments
are more than just the interest. Also, the investment fund is
designed to pay off the mortgage loan in full, but this is by
no means guaranteed. Many people are finding themselves in a
situation where there is a shortfall in the policy and they are
unable to pay off the mortgage in full.
Endowment vs. repayment loan
The major alternative to an endowment loan is the traditional
repayment loan, where you pay off the loan and interest each
month until the entire amount is repaid. These types of loan
carry higher monthly payments, and are a safer option than
endowment loans. However, during times when inflation is
increasing an endowment loan is a good idea, as the risk is
reduced and you can benefit from lower payments each month. The
key as to whether an endowment policy is right for you depends
on the current market and how willing you are to risk the
policy falling short of the full loan repayment amount.
About The Author: Peter Kenny is a writer for The Thrifty Scot,
please visit us at http://www.loanwize.co.uk and
http://www.thriftyscot.co.uk/Loans/
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