Endowment Mortgages

09/27/2009

Endowment MortgagesEndowment mortgage is the kind of mortgage wherein you only pay for the interest and the premium for the endowment policy you have bought but not the principal amount of the loan during its appointed term.  The policy for the endowment will increase by the time the mortgage is fully paid for, generally 25 years after.  With this plan, you will be paying as well for a life insurance policy that will cover the repayment of the loan in the event something happens to you before the mortgage is fully paid for.

The endowment policy consists of two components, a life insurance and the investment. The life insurance guarantees the payment of the mortgage in the event of death within the loan period and the investment component comes in when you have repaid the mortgage and the policy has been paid in full while you are still alive. However, the investment part is not an assurance as sometimes the endowment policy is not adequate to pay off the entire debt even at the maturity date of the policy, thus, giving you the unexpected problem of looking for ways to pay for the balance. This is why endowment mortgages are not a common option for many.

As discussed earlier, your payment only goes to the interest and the principal loan amount is not diminished.  It would be great if the endowment policy will earn well, then it will be able to cover the mortgage amount totally. If the reverse happens, you will still have to worry how you will be able to pay for the balance after 25 years of paying.

If this is the case, then the lending establishment will advise you that the policy is not performing well as forecasted therefore will end up with insufficient fund to pay off the mortgage upon the policy’s maturity. Once advised, you should immediately take action to remedy the situation.  Do not act in desperation and make hurried decisions. But do not also dilly dally as ignoring the advice might put you in a worse situation. You have to get all the information and do not convert your policy immediately.  You could ask the lender to change your endowment loan to another type of loan wherein the principal is also paid with interest or you can cut your expenses so you can pass the savings to additional payments for the deficit. Perhaps you could also work out to extend the terms of payment of the endowment mortgage or perhaps restructure the endowment plan.

Under these circumstances, you might have to ask for the recommendation of your financial adviser or take up the matter with the lending company.

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