Investment backed mortgages 
 

Investment backed mortgages and most particularly endowment policies have come in for a lot of criticism in recent years. Much of this is not justified. Endowment policies can and have been an excellent investment for some policy holders. Consider this (true) example.

An endowment policy was taken out in January 1974 with a top performing insurance company. The sum assured was £50,000 and the term was 25 years. The policy has just matured. The policy holder received just over £160,000. This gave him £50,000 to repay his mortgage and £110,000 to spend as he pleased.

Unfortunately stock market returns have been considerably lower in recent years than they were during the 1970s and 1980s. As a consequence endowment mortgages taken out during the last 10 years have not performed as well as this. Some people who took out a ten-year policy with a poor performing life company, found that their policy did not even provide enough money to repay their mortgage, never mind providing any surplus. These policy holders were faced with the choice between increasing the level of premiums paid into their policy or paying off the shortfall from their own resources.

No one knows how the stock market will perform over the next 25 years. An investment backed mortgage may or may not be a good investment but before you can decide whether it is the best type of mortgage for you, you need to take advice from a suitably qualified professional.

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