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An endowment mortgage policy is a long-term investment linked to life insurance.
You agree a monthly payment for between 10 to 25 years, after which the policy expires and releases a lump sum, which you can then use at your discretion, or to pay off your mortgage.
If you are using an endowment policy to pay off a mortgage, this will be taken out alongside an interest-only mortgage, paying it off the balance when the endowment matures.
A portion of the policy premium will be paid towards the life insurance, for which you can choose a beneficiary if you die before the policy expires.
The money you pay into the policy is invested in stocks and shares by the endowment provider. The performance of the shares perform over the policy term will impact on the amount you receive as a lump sum at the end.
Nowadays, you can only usually buy an endowment as an investment plan.
While they used to be sold alongside mortgages, many of these endowment mortgage policies were mis-sold, leading to consumers not understanding the risks associated with a lower than expected payout.
Once maturity was reached, many endowment mortgage policies failed to cover the mortgage balance. They also offered tax relief which is no longer applicable.
If you currently have an endowment policy, you have a few options:
Non profit policies are designed to pay a specific amount when they mature. These policies have lower premiums than those permitting you to make a profit and include life insurance.
With profit endowment policies are designed to pay an agreed lump sum with additional profit on top, assuming the investments have performed well.
Unit linked endowment policies use your premiums to buy units in investment funds, which you can select and change during the term.
Whole of life endowment policies include life insurance for the rest of our life, and pay out a lump sum to pay off your mortgage if you die before paying it off.
There are a few types of endowment bonus that may be payable depending on your policy:
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.