An endowment mortgage is a type of mortgage that was popular in the UK in the 1980s and 1990s. It combines an interest-only mortgage with an endowment policy, which is a type of investment plan designed to pay off the mortgage when it matures.
With an endowment mortgage, the borrower makes monthly payments towards both the mortgage and the endowment policy. The idea is that the investment growth of the endowment policy will be sufficient to pay off the mortgage when it matures, usually after 25 years.
Endowment mortgages were attractive to many borrowers because the monthly payments were typically lower than those for a traditional repayment mortgage, which requires the borrower to pay off both the capital and the interest on the mortgage each month. In addition, the investment element of the endowment policy meant that borrowers had the potential to receive a lump sum or income at the end of the mortgage term.
However, endowment mortgages have fallen out of favour in recent years due to a number of issues and these types of mortgage are no longer available. In some cases, the investment growth of the endowment policy was not sufficient to pay off the mortgage, leaving borrowers with a mortgage shortfall.
