ISA Mortgages

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If you take out an interest only mortgage, you still have to find some way of paying off the capital that you have borrowed at the end of the mortgage term. One of the options you could use to do this is an ISA.

An ISA is a very flexible investment vehicle unlike an Endowment which you cannot stop paying into without incurring penalty charges. With a pension mortgage you will not be able to pay off the mortgage until you have retired which could at the age of 50 or older. An ISA allows you to stop and start payments with little or no penalty charges.

ISA Stands for Individual Savings Account. Every month, with an ISA mortgage you will be expected to pay the interest on the loan monthly, you then take out the ISA to build up a fund which will pay back your mortgage at the end of your mortgage term. An ISA comes with tax benefits too as the savings that you accumulate are free from income tax or capital gains tax. Your investment could grow quite rapidly resulting in you being able to pay off your mortgage earlier than you had first hoped for.

There are two types of ISA, a maxi and a mini. The government will allow you to put £7000 a year into an ISA used to back up a mortgage. The Maxi ISA is usually a stock market account and is more likely to generate the money to pay off the capital on your mortgage. You are allowed one maxi and up to three mini ISA’s.
ISA’s can be viewed as cheap when the stock market has fallen, because you have to pay less for the units that you are funding.

However you should consider the fact that any sort of interest only mortgage carries more risks than the traditional repayment mortgage. An ISA is a form of interest only mortgage, relying heavily on the stock market and you are not guaranteed to make enough funds to pay off your mortgage.

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