In relation to an endowment mortgage, which statement is correct?

• A. Monthly instalments paid to the lender consist only of interest payments on the loan
• B. Monthly instalments include repayment of the loan principal
• C. The endowment policy is used to repay the loan at the end of term
• D. The borrower pays a lump sum at the start of the term

Answer: (A)

In an endowment mortgage the loan is designed so that you pay interest on the mortgage monthly, while the principal is not reduced during the term. Instead, you build up an endowment policy with regular premiums, and the payout from that policy at the end of the term is intended to repay the loan in full. So the monthly instalments to the lender are solely interest on the loan.

That’s why the statement about monthly payments being only interest is the best answer: it directly describes how the cash flow to the lender works throughout the term. The endowment policy’s future payout is what would be used to settle the loan at the end, which is a separate aspect of the arrangement. The other options describe features that don’t match the typical structure (principal isn’t paid down monthly; a lump-sum upfront payment isn’t part of the standard endowment mortgage; and while the policy does aim to repay at end, the question is about the monthly payments).