What happens if there is a shortfall at the end of my mortgage term?

Shortfalls can occur on any interest only mortgage where the capital repayment due at the end of the mortgage term is relying on an investment vehicle such as an ISA, pension plan or endowment policy, and the investment fails to grow sufficiently to fully repay the mortgage on the due date.

No matter how it is created, a mortgage shortfall has to be repaid to the mortgage lender.

If you can see the situation developing well in advance, then you may be advised to save or invest more in order to make up the shortfall. Another alternative might be to switch the balance of your mortgage to a repayment mortgage. Either way you need independent professional advice.

Indeed, there has been a lot of media coverage in the last few years about endowment policies that have failed to achieve there expected growth rate and as a consequence, fail to fully repay the mortgage as intended. (It has been estimated that 3.5 million households could potentially face shortfalls of £5,000 or more on their endowment policy backed mortgage).

If you already own an endowment policy and are concerned, you need to take independent professional advice. They may suggest that you invest in another savings vehicle to cover yourself against a potential shortfall. They may also advise making a claim for wrongful advice against the organisation that sold you the endowment plan.