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Endowment and Discount Mortgages

Endowment Mortgage

An endowment mortgage is very similar to an Interest Only mortgage with one main difference. The difference is that an amount of money is paid into an endowment saving vehicle that will pay off the capital at the end of the mortgage term. The endowment is often linked to the stock market. This means that if the stock market increases at the expected rate over the period the capital will be paid off in full and sometimes a little is also left over for you to spend as you wish. However, the stock market is a difficult animal to predict. The endowment mortgage was very popular a few years ago but because the stock market has not preformed as the experts believed over the last 10 years a lot of people now have short falls in the capital that must be paid back at the end of the term.

Endowment Mortgage

An endowment mortgage looks good on paper and may save money but you must also understand that the end payment received is only an estimate and maybe higher or indeed lower than the company suggests. There is a degree of risk with an endowment that you must understand before agreeing to purchase.

Discount Mortgages

Discount mortgages offer a discount on the interest rate charge for a period of time. After this period has passed the rate reverts to the standard variable rate. The discount rate often last for the first two or so years. This rate is fixed for he period a will not be subject to increases or decreases in line with the base rate.

All discount mortgages have early redemption penalties for paying the mortgage off or changing lenders. Often this redemption period is longer than the discount period. So when considering a discount mortgage you must investigate the redemption penalty period and the discount period. Often people find they have difficulty paying the mortgage once the discount period has passed and the standard variable rate applies.

The main put to consider is the discount period and also the standard variable rate as the penalties for early redemption far out weigh the discount. These mortgages are very popular and used correctly can save a great deal of money.

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