Endowment Mortgage

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Why are endowment mortgages so controversial?

An endowment mortgage sounds like a great deal: pay less money each month and let the stock market take care of the rest. However, as many unfortunate home owners have discovered, share prices can go down as well as up. Approach any endowment mortgage with caution.

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It sounds like a no-brainer: the stock market has grown dramatically every year for decades, so why not invest in it to pay off a big chunk of your mortgage? That's the thinking behind the endowment mortgage, a mortgage where you pay the interest and invest in a kind of pension plan. At the end of the mortgage term, you should have made enough money to cover the outstanding balance with a tidy sum left over for you to spend on anything you want.

Many purchasers decided that an endowment mortgage was the best bet for them especially at the height of the dotcom boom, when share prices went into orbit. Then the Internet bubble burst, September 11th happened and the Enron scandal rocked the financial world. To add insult to injury, many homeowners were also hit by negative equity, which meant they owed more money than their homes were worth.

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