Repayment Options
Endowments
| With profit
| Low cost | Unit
linked | Other |
Advantages | Disadvantages
Advantages Of Endowment Mortgages
Aside from the general points that relate to most interest-only
products, there are a few added features of endowment mortgages
which may influence your decision on whether to use one
as a repayment vehicle for your mortgage. Not all these
sadvantages will necessarily apply to every single type
of endowment policy in all circumstances. Always check the
policy literature, ask the life company or consult an expert
if you are in any doubt.
If your policy grows at a faster rate than was assumed
when it was taken out, you should end up with a cash surplus
at the end of the repayment term. This surplus is yours
to keep and is free of tax. You may also be able to pay
off your mortgage early, depending on the endowment type.
Life insurance is an integral part of the product, a fact
which can bring two advantages: Peace of mind that your
mortgage will be fully paid off if you die during the term
and the fact that you do not need to worry about arranging
life insurance to cover your mortgage loan separately. You
can sometimes integrate income protection with endowment
policies as well, in the form of a waiver of premium, although
you may still feel it is necessary to take out an additional
protection policy to protect your interest payments.
During periods of low interest rates, a greater portion
of your fixed monthly payment is going into your endowment
policy, as your interest charges will be lower. This increases
the likelihood of there being a surplus at the end of the
mortgage term. This means that endowments can be more attractive
when base rates are likely to fall in the future.
If you do stop your payments into the endowment, then
your policy value may still increase, as the underlying
fund should still be growing. Unfortunately, this will not
be nearly as fast as it would be under normal circumstances
because:
Endowment policies are portable. You can take the endowment
with you if you move to a new home, though you may need
to top up the payments if you add additional borrowing to
your mortgage. The term of new mortgage does not have to
extend beyond the original endowment, so you could end up
clearing your overall mortgage debt quicker than with a
series of repayment mortgages.
