Your monthly payment to the lender consists of part capital and part interest. In the early years, the larger portion is interest and in the latter years it is reversed being mainly capital. With this type of mortgage, if all payments are made on time with interest rate changes amended on time the debt will reduce to nil at the end of the term.
What is an endowment mortgage?
Strictly speaking, there is no such thing as an endowment mortgage! The mortgage is interest only throughout the term leaving the capital to be paid at the end of the term. The capital is provided by way of an investment vehicle, which is paid separately each month to an insurance company. This can take the form of an endowment, ISA, unit trust or pension. The majority of mortgages have been covered by an endowment policy and this is how the name "Endowment Mortgage" has arisen.
Are endowment mortgages bad?
In short no. Endowment mortgages do not suit everybody's circumstances and therefore professional advice should be sought. For those people who already have an endowment mortgage, it is important to monitor the performance of the policy to ensure that at the end of the term sufficient funds are there to repay the debt. Any shortfall at maturity is the responsibility of the borrower.