|The Truth about Endowment Mortgage|
With endowments, your mortgage is set up so the monthly payments go down. With a mortgage of this type, you only pay interest going toward the amount of money you received from the lender. You will also find that endowments are set up so you also pay a small amount of money that goes into a special policy, which grows over time as money is added. With a policy such as this, when you near the age of retirement and your mortgage loan is close to being paid off, the capital of the mortgage loan is paid using the endowment money.
The concept behind endowments is that you save money, more than you would have to spend if you were to take out a regular type of repayment loan. The reason is that you make the payments to the endowment policy, which is then considered a type of secure investment. Now, if endowments are established and managed properly, not only is there money to pay the capital of the mortgage at the end of the loan, but often, there is money left over, which goes back to the policyholder.
Initially, endowments were quite common during the 1980s but with changes in the stock market, a large number of endowments ended up with worth nothing to little. Today, lenders advise that using endowments can be beneficial but there is always a significant risk. In other words, if run the right way, they can work exceptionally well but if not, they can be disastrous.
As mentioned, endowments are designed so the homeowners are only paying on the interest associated with the home loan. During the years the home is being paid on, the money going into the endowment policy is an investment. Most often, the money is invested in some type of equities, with the goal being for the money to grow so the policyholder ends up on the plus side of the deal.
Unfortunately, things can go wrong with endowments. Choosing to go this route means you are putting yourself at risk depending on what the stock market choose to do. Then, it is imperative that you have a highly competent professional managing the policy in that it needs to be monitored consistently to ensure its performance is where it should be and that enough money is being added.
For some reason, endowments are once again being used, with many buyers seeing the positive side of a policy such as this. As long as the stock market does not fluctuate too much and you put in not only the right amount of money, but consistent money, endowments can work. However, if the stock market decides to take a nosedive and the current economy keeps going in the same direction, you could find yourself in a mess. After all, you would end up paying only the interest, meaning you are now faced with the task of finding a means of paying the loan’s capital.
The foundation for endowments is that the policy is support to pay the mortgage but for this to work, the investment growth rate has to be greater than the amount of interest you are being charged for the mortgage loan. Otherwise, the whole endowment is unbalanced, leaving you in a position of not having adequate funds remaining when the time comes to pay the mortgage capital.
You always want endowments to increase in value. Just remember that this value is connected to the stock market and its performance. Therefore, while endowments might have some positive aspects, you truly are at the mercy of the market. If the stock market does well, you have hit a homerun but if it goes down dramatically, then you come up short of money.
In today’s world, we see a huge explosion of people flipping homes, buying cheap and damaged, and spending time and money to transform the home and then sell for a nice profit. In this situation, managing money needs can be complicated and difficult. After all, flippers need to keep money coming in while putting out finances in getting the homes completed. Often, home flippers will choose commercial loans, which is one option but another option is with endowments.
Because monthly mortgage payments are much lower, this frees up money so the flipping can be managed more effectively. Then, once the home is completed and sold, the money saved in the endowment policy is used toward the loan’s capital. This lower monthly payment allows flippers to work on more than one home at a time, which ultimately increases the overall ability to make serious money.
In the case of buying endowments that do not make enough money to pay off the capital, there are some compensation options. Unfortunately, some fraudulent activities have been around endowments in recent years so this is definitely something you want to learn more about and make sure you work will experienced professionals. This way, risk is greatly reduced so the endowment policy can help you in the way it was intended.
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