Although this type of mortgage may have more risks than other types of mortgage they are still a very popular choice of mortgage because they can have big pay outs at the end of the term. This type of mortgage has the mortgage interest re-payments and then the endowment policy is a separate payment that goes along side the actual mortgage.
Below is some more information on how the endowment policies benefit many people each year and how the process actually works.
How endowment policies work
This type of mortgage is also known as an interest only mortgage because of the fact through out the term you will just pay the interest. The money that you pay into the actual endowment policy is put into investments etc, so it’s intended to earn money over the years you are paying into it. Although many do earn money the investment market is not guaranteed so there is always the risk it will not raise the money it is initially thought to. The idea of the policies is that you pay off the interest on the mortgage and the bulk of money left at the end of the term in the endowment fund is used to pay off the capital on the loan. If invested correctly and payments are made promptly then there is a great possibility that the policy can gain enough interest to pay off the capital in full as well as having plenty left over to pay for any luxuries or necessities you may need to pay for such as outstanding debt or home improvements.
What you can do if you face a short fall at the end of the term
There are a number of things you can do when you are facing a shortfall in the final amount paid out by your endowment policy. First of all you would need to ensure you wouldn’t receive any penalty charges for paying up your loan early. If you check your policy on a regular basis then you should be able to keep track on whether it is going to pay the amount intended. This way if you do see that its not going to pay out the amount you need it to you can think of other methods to pay off the difference. As well as paying a lump sum you could also either pay off more each month for the rest of the term or extend the length of the term your paying back.