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Endowment Mortgages
Question: What is an "endowment" mortgage?
Answer: An "endowment" mortgage is a combination of a mortgage and a whole life insurance policy which is used in England, I am told, and is now available -- in somewhat different form -- to this country. In essence, you have an interest-only mortgage and the money not paid for principal is instead used to pay for the insurance policy. The idea is that the cash value of the insurance policy will eventually be enough to pay off the mortgage. But, what are the precise terms and conditions such financing involves? Example: Is the quoted rate of return for the insurance policy the actual, guaranteed rate of return for the policy over its entire lifetime? If not, any projections based on something other than the guaranteed rate of return should be seen as fiction. One area where e-loans merit interest is in the fact that they offer life insurance -- a valuable (if ghoulish) benefit, especially in the first few years of coverage. E-loans must be reviewed by an attorney to assure that all terms and provisions are understood. Also, a tax professional should be consulted to determine what can or cannot be written off with such financing. Questions to ask professional advisors include: Must the insurance policy be maintained if you move or refinance? Must you take a medical exam to qualify for e-loan financing? What is the guaranteed rate of return? Who is the beneficiary of the insurance policy? What are the estate planning issues raised by this form of financing. Etc.
Written by Peter G. Miller.
© 1997 Peter G. Miller. All Rights Reserved. Rules, Disclaimers & Notices.
Copyright © 2012 Realty Times. All Rights Reserved.
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