Endowment Mortgage
A traded endowment policy or an endowment mortgage has two separate parts, a monthly interest payment to the endowment mortgage lender and a monthly payment into a with profits endowment policy which is mainly invested in stocks and shares.
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The policy is usually arranged so that it ends when the mortgage loan ends, so that the proceeds are available to use in repaying the amount borrowed. There are over 8 million endowment mortgage policies in the UK which are linked to a mortgage.
Many home owners chose to use endowments to repay their mortgages: interest rates were high, and the stock market was booming. Today interest rates have fallen to unprecedented levels, and stock market returns are lower. This has had an impact on endowments including those being used to repay mortgages.
Borrowers have found the interest part of their mortgage payment has dropped significantly, but on average the investment performance of the endowment mortgage has also been reducing.
Between April 2000 and March 2002, average endowment mortgage interest rates fell by 2%, causing the interest payments on a £100,000 endowment mortgage to decline by about £165 per month.