Interest Only Mortgage and Endowments

When you decide to buy your dream home, the first word that pops up in your mind is ‘Mortgage’. As a prospective shopper your curiosity about how to repay the loan is quite common. There are two avenues to pay off your mortgage, let’s go through the following mortgage types:

  1. Repayment Mortgage: Under this process, your monthly premium combines interest and a part of your debt. You repay the loan in full in due course of time.
  2. Interest Only Mortgage: In Interest Only Mortgage (IOM), you need to pay the interest on your debt only. The principal is not paid and stays as it is. You have to pay the principal amount in full at the end of the process.

IOM can be secured with an endowment policy. With profit endowment policies return you a lump sum on maturity and the amount is likely to meet your home loan amount. By investing your money in a traditional with profit endowment policy you are assured to get a certain amount when the policy matures. It often entitles you for reversionary bonus and a non-guaranteed bonus at the end. The bonus amount is influenced by stock market performance.

Hence, with a with profit endowment you can get more than what you expected and that is the reason, you should do some research before you surrender endowments if any emergency arises. You can always sell endowments in the second hand market. By selling endowment policy you can get an amount often higher than the surrender value.

The value of a traded endowment policy depends on various factors like the present condition of the policy, how far is it from maturity, is any premium is due or not, the stock value and many more. If the situation goes in your favor, you can get a huge amount by selling endowment policies. On the other hand, the surrender value hardly equals to the accumulated amount of premiums paid.

If you ever feel that your endowment will not be able to satisfy your Interest Only Mortgage, sell it out. Contact an authorized IFA to know your options.

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