The phrase "endowment mortgage" is used mainly in the United Kingdom by lenders and consumers to refer to this arrangement and is not a legal term.
The intention is that the payout from the endowment policy when it matures will be sufficient to repay the mortgage at the end of the term, and possibly create a cash surplus.
This meant that any capital repaid on a monthly basis is not removed from the outstanding loan until the end of the year thus increasing the real rate of interest charged.
The TEP market enables buyers (investors) to buy unwanted endowment policies for more than the surrender value offered by the insurance company.
The other types of policies - “Unit Linked” and “Unitised With Profits” have a performance factor which is dependent directly on current investment market conditions.
Significantly, endowment mortgages continued to grow in the 1980s even after life assurance premium relief had been abolished in 1984.
[3] Regulation of investment advice and a growing awareness of the potential for regulatory action against the insurers lead to a reduction in anticipated growth rates down to 7.5% and eventually as low as 4% per annum.
In many cases, because risk warnings were not made as clearly as they are in today's investment market, courts have found against the insurer or broker responsible for the original advice and have required them to restore their customers to the financial position they would have been in had they taken out a repayment mortgage instead.