03 April 2007

You learn something new everyday.

Apparently there is this thing in the UK called endowments. It seems that an endowment mortgage is a mortgage on your home where you only pay the interest. The principle is covered by an insurance policy (called an endowment) that you pay monthly premiums on. Then, at some set point in time I imagine, your policy will pay off your mortgage.

The English are pretty ingenious in mortgages. I've heard that England is where reverse mortgages started because there were lots of older people who were property rich (with huge estates) and cash poor. A reverse mortgage was a way to draw money out of your property while still living there.

Endowments were issued in the 70's and 80's with the assumption that the investments of the endowment policy would outgrow the interest on loans. For a variety of reasons this didn't work out. People with endowments are now stuck with policies that won't pay their mortgages. Many surrender the home to the policy holder. How sad is that, losing your house after all those years of payments. Well, now apparently there are places where selling endowments are an option. People who have endowments might make out better by selling them than surrendering them, they may get up to 35% more.

Fascinating. It's amazing the things people will come up with when it comes to financing a home.

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