Endowment Mortgages

Interest Only Mortgages – Endowment/ISA Plan/Pension

Having discussed Repayment Mortgages in my earlier article, this week I am going to talk about Interest Only Mortgages. A mortgage like this means the borrower is simply paying off the interest with each monthly mortgage repayment. This means that the borrower still needs to pay the debt by the time the mortgage term has come to an end.

In order to pay off the debt, the borrower must also take out an alternative means of repayment with the mortgage. This would be in the form of an ISA, pension plan or endowment policy. The idea behind this is that the investment will increase during the mortgage term to a sum large enough to pay off the capital.

Consequently, it is vital that payments are regularly maintained for the duration of the mortgage. If not, it may not be possible to pay off the mortgage in full at the end of the term.

In my next article, I will discuss the advantages and disadvantages of an interest only mortgage and endowment plans.