Mortgage Endowment Policies
Mortgage endowment policies combine a mortgage loan with a life insurance policy and investments in a bid to repay the loan. Mortgage endowment policies were a popular form of mortgage sold agressively to consumers in the U.K. in the 1980s and 1990s.
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Interest
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The theory behind mortgage endowment policies is that the consumer makes monthly payments to pay off the interest accruing on the mortgage loan, not the principal. A portion of the monthly payments is paid into an endowment policy, providing life insurance and investment opportunities.
Insurance
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A mortgage endowment policy links to a life insurance policy that pays off the mortgage in the event of the death of the mortgage purchaser before he repays the loan.
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Problems
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At the end of the mortgage term, typically 25 years, the payments invested in the endowment policy should pay off the principal amount of the loan and give the consumer a cash bonus. However, according to the This Is Money financial website, there is no guarantee that a mortgage endowment will make enough profit to repay the mortgage in full, with around 6.8 million of the U.K.'s 8.5 million endowment policies in 2004 not expected to make enough profit to repay the initial mortgage amount.
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