An endowment mortgage is a type of Interest-Only mortgage designed to repay the mortgage using an Endowment life assurance policy, which builds up its value and is subject to investment returns. The mortgage is split into two parts, the first is the monthly interest payment to the mortgage lender, and the second is the monthly payment into an endowment policy, which that is mainly invested in stocks and shares. It includes life cover for the amount of the mortgage.
What this means is that you are only paying off the interest on the loan during the term on the mortgage so the balance of your mortgage never changes. The mortgage is designed to be repaid at the end of the term with the proceeds of the endowment policy, subject to investment returns.
Endowment mortgages have lost their popularity in recent years following the down-turn in stock market returns, which produced shortfalls in the endowment policy, and leaving people with a shortfall in the policy they entrusted to repay their mortgage.