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An endowment policy is the most common type of investment with an interest only mortgage. You can pay a fixed monthly payment towards an investment. This is designed to grow so that the amount invested and it’s growth are enough to pay off the capital. The policy will also provide life assurance then your mortgage will be paid should you die during the term of the plan.

At the start of the policy, assumptions will be made about the potential growth of your investment. The problems with endowments have arisen when people have signed up to a very high growth rate. This has meant that their monthly investment has not generated enough capital. This is required to fully repay the loan at the end of the term. Your investment will be more secure if you work on a cautious growth assumption. This will require much higher monthly payments, although it will be less risky.

If the plan has performed well, then you could end up with a lump sum payment in excess of your capital repayment at maturity. The cash surplus will be tax free. However if the policy has not performed well, you might have to find funds. A portion of the policy will have to be paid yourself.