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Understanding Mortgage Terms: Investment Mortgages

Investment mortgages, sometimes known as endowment mortgages, are an alternative to repayment mortgages. Instead of paying off a portion of the loan each month as you would with a repayment mortgage, a payment is made to cover the interest each month, and also a payment is made each month into an investment plan.

The idea behind Investment Mortgages is that at the end of the mortgage term the investment matures and should have generated enough of a return to cover the purchase price of the property.

Investment Mortgages have an attraction in that if the investment over performs, the borrower could receive a windfall at the end of the mortgage term of the amount returned by the maturing investment over the amount required to pay off the loan. The downside to investment mortgages is that just as an Investment can over perform, it can also under perform which can result in a borrower either having to make additional payments during the life of the loan, or else the investment may not be sufficient to pay off the mortgage.

Investment mortgages were sometimes know as endowment mortgages, however endowment mortgages have had such bad press in recent years that this term has all but disappeared from the marketplace. This should not be of too much concern to anyone

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