What is Endowment Mortgage?

Full Definition

An endowment mortgage is an older mortgage structure, common from the 1980s to the late 1990s, in which the borrower pays interest only on the mortgage each month while separately paying premiums into an endowment life insurance and investment policy, with the intention that the policy's eventual payout would cover -- or ideally exceed -- the outstanding capital at the end of the mortgage term. Because the endowment's payout depends on investment performance rather than being guaranteed, many policies sold in the 1980s and 1990s underperformed the projections used to sell them, leaving hundreds of thousands of borrowers with a "endowment mortgage shortfall" -- not enough from the policy to fully repay the mortgage balance at maturity -- which led to a wave of mis-selling complaints and Financial Ombudsman Service rulings against advisers and providers from the late 1990s onwards. Lenders have generally stopped offering new endowment mortgages, and existing endowment policyholders nearing maturity are usually advised to check their policy's projected payout well in advance and, if a shortfall is likely, arrange to switch some or all of the mortgage to a standard repayment basis, extend the term, or otherwise plan to cover any gap rather than assuming the policy alone will clear the debt.

Related Calculators

See Also