In an endowment mortgage, the monthly instalments paid to the lender consist of what?

• A. They consist only of principal repayments on the loan
• B. They include a fixed mix of principal and interest
• C. They are payments for insurance
• D. They consist only of interest payments on the loan

Answer: (D)

In an endowment mortgage, the loan is meant to be repaid at the end of the term from the value of an endowment policy, not by regular repayments of principal to the lender. So the monthly instalments paid to the lender cover only the interest on the loan each month. The principal is not paid down to the lender month by month; instead, it’s funded by the endowment policy that should mature to repay the loan. The endowment policy is a separate saving/investment tied to the mortgage, not part of the monthly interest payment to the lender. If the endowment doesn’t grow enough, there could be a shortfall at the end.