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28 August 2007
Recent reports and campaigns have highlighted the millions of people that have become victims of mis-sold endowments after taking on interest only mortgage loans in the 1980s and 1990s.
Interest only mortgage loans are not as popular as they once were, and according to reports the risks associated with these loan means that some lenders have actually stopped offering interest only deals.
However, they were once very popular, basically because they enabled borrowers to enjoy lower monthly repayments on their mortgages.
With a repayment mortgage loan borrowers make monthly repayments that are then split between the interest owed on the amount borrowed and the actual principle loan balance.
However, with an interest only loan the repayment is applied only to the interest on the loan, which is why the repayments are lower. However, this means that at the end of the loan term the principle balance borrowed is still outstanding even though all of the interest on the amount borrowed will have been paid.
In order to ensure that borrowers can repay the principle loan amount at the end of the mortgage term those taking out an interest only mortgage need to also pay into some sort of sideline investment to run alongside the mortgage, which is the endowment.
However, many people that were sold endowments in the past were apparently not told of the risks involved – basically that there was a chance that the investment could under-perform and this could result in failure to raise the required amount to pay off the mortgage loan at the end of the term.
Following campaigns by consumers groups such as Which? those that claim to have been mis-sold endowments in the past, where they claim to have been mis-informed about the risks or sold an inappropriate endowment, many be able to claim compensation.
Reports indicate that some companies that have sold endowments in the past have already started to put aside funds to deal with compensation claims, and that mis-sold endowments could have affected many people.
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