Return to the Mortgage Glossary Home to view explanations for all mortgage terms. What follows is the definition for the term Endowment Mortgages as it relates to mortgages in the UK. Endowment MortgagesEndowment-linked mortgages are the main alternative to a repayment mortgage. These mortgages were very popular in the 80's and 90's. Lenders will advance you money and only ask you to pay the interest back each month. They still want you to pay off the loan eventually, of course, but they are happy for you to do this by taking out a life insurance policy for an agreed length of time (usually 25 years). When the policy matures, the lender takes repayment of the money owed to him, any surplus is yours. You just don't want to go there. An endowment mortgage is a form of interest only mortgage. The endowment policy is a combination of savings, investment and life assurance all wrapped up in an insurance policy. The life assurance bit merely ensures that the mortgage is automatically paid off if you suddenly drop dead. Unfortunately, many endowments are failing to meet expectations, one of the reasons being that their charges are extremely high. The other reason is that investment returns have fallen in recent years. Remember, if this happens with an interest only mortgage, you will probably need to increase the amount you pay into your investment fund. The same is true with endowments. Unfortunately, the policy providers have been rather slow to pass this message on, meaning that many people are now getting letters warning that their endowments may not cover their mortgage.
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