Personal Finance

Q 1 Andrew and dungaree have been considering a low- greet giving mortgage. Briefly explain the problems inherent in such mortgages.

According to hick Finance low-cost ratiocinationowment mortgage is the most chronic form of gift used to repay a mortgage. It provides purport cover, which would pay off the mortgage if the insurance policyholder dies. As long as investment as rack upptions argon met the endowment should provide a testis sum sufficient to repay the mortgage at the end of the term. If the assumptions were exceeded then there would be a lump sum over and above the mortgage get for the borrower to enjoy. There are many problems with Low cost endowment mortgage:

1. withal dependent on investment: In low cost endowment mortgages the life company invests the money and therefore the meat of money received will depend on how smartly the company has invested the money. If the investment in the policy grows at bonnie rate, then the policy will asseverate enough at the end of the mortgage term to pay off the loanword and produce some extra cash.

2. No guarantee that loan would be repaid: There is no guarantee that Life fraternity will invest the money wisely.



It is very likely that the endowment policy will not grow enough to produce a substantial profit over and above the amount of the loan, which therefore means it could become more expensive than a quittance mortgage. It is also likely that the policy fails to provide for the repayment of loan.

3. Inflexible: The endowment mortgage is very inflexible. Stopping the endowment policy or cashing it may involve hefty penalties. If Andrew and Jean stop paying the premiums in the early years, the cash in value of the endowment policy is very low. Selling the policy could mean that they loose money...

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