Meaning of an Endowment mortgage
Among the different forms of mortgages, endowment mortgage is one which is based upon an endowment plan where the means of paying off the mortgage is primarily tackled by the plan. The process applied in an endowment mortgage to pay off the mortgage at the end of the term is quite complicated and involves the existence of a life insuring company as well. An individual who holds an endowment mortgage normally makes payment to a life insuring company or any insurance company which may reinvest the same into a savings instrument. Generally any endowment plan relates to insuring the life of an individual and as such carries the component related to the physical health condition of an individual. Whenever a person who holds an endowment mortgage dies when the term is in force, then the amount related to the mortgage will be paid off automatically.
There are basically two different types of endowment mortgage. The type of endowment mortgage that relies basically on the value of the underlying financial instrument during the maturity phase of the policy is termed as a unit linked endowment mortgage. There is another type of endowment mortgage known as the with profits endowment mortgage. In general terms the value of a unit linked endowment mortgage usually fluctuates in the market according to the movements experience in the market monetarily. An upward movement in the market may trigger an upswing in the values of the units related to the endowment mortgage and a same situation in the opposite direction in the other case of downward movement in the market.
In the case of a with profits endowment mortgage one can experience two types of advantages in terms of bonuses paid by the endowment during the period of the mortgage. This type carries two bonuses namely a reversionary bonus and a terminal bonus. A reversionary bonus in a "With profits" type of mortgage is generally paid once a year till the life of the mortgage. The terminal bonus is paid at the end of the term of the policy. Usually the value of a terminal bonus is dependent on the value of the underlying financial instrument and cannot be guaranteed by the insurance company.
An endowment mortgage is transferrable to another property. Faster growth in the value due to favorable market conditions would empower an individual to pay off the mortgage much quicker. The value of the life insurance in this type is usually much cheaper than a normal life insurance policy.
An endowment mortgage is not a flexible type of investment option where one cannot start or stop paying the premiums of the endowment. The market conditions would decide the true value of this type of instrument through the time. One may not be guaranteed the value anticipated at the start of the term. One should also make a note of the high charges applied in this type of financial instrument. It is always advisable to seek the help of a financial advisor in matters related to an endowment mortgage.