ISA Mortgages

An Isa mortgage is an option you could choose when an interest only mortgage is taken out. With Interest only mortgages you pay off the interest only each month, you still have to find a way of paying off the capital that you have borrowed when the mortgage term ends. There are a few options and one of them is an ISA.

Unlike an endowment where you incur penalty charges if you stop paying into it, an ISA is very flexible. A pension mortgage means you cannot pay off your mortgage until you actually retire which could be 60 or older.

ISA means Individual Savings Accounts. You pay the interest monthly on your mortgage then take out the ISA to help build a fund which can pay back your mortgage capital when the mortgage term ends. There are tax benefits with an ISA because the savings that you have are free from income tax or capital gains tax. Investments can grow rapidly which would help you pay off your mortgage quicker and in some cases earlier than expected.
The two types of ISA are maxi and a mini. To back up any mortgage the government allows you to put up to £7,200 a year into an ISA account. From April 2008 you will be able to invest in one cash and one stocks and shares ISA each tax year. Up to £3,600 of that allowance can be saved in cash with one provider. The remainder of the £7,200 can be invested in a stocks and shares ISA with either the same or another provider.

For example, you can chose to save £1,000 in a cash ISA with one provider and £6,200 in a stocks and shares ISA with a different provider.

A maxi ISA is normally a stock market account. You can have one maxi and three mini ISA’s.
ISA’s will be seen as cheap if the stock market falls because you pay less on the units that you are financing. However don’t forget the fact that interest only mortgages have more risks than normal repayment mortgages. You may not make enough funds to pay off your mortgage capital, as an ISA is a form of interest only mortgage which relies solely on the stock market.

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