Repayment Options
ISA mortgages | Organising
your ISA | Advantages
| Disadvantages
Introduction To ISA Mortgages
ISAs were brought in to replace PEPs as the mainstream
tax-free savings vehicle. They take a variety of formats:
you keep hold your money in cash, life assurance policies
such as endowments, or stock market based investments such
as shares, unit trusts, investment trusts and investment
bonds, or even a combination of the different holdings.
Only a very small percentage of the mortgage market involves
interest-only mortgages coupled with an ISA.
As is normal for all the interest-only repayment methods,
you pay interest on the full amount of the loan for the
full duration of the term. You also pay an agreed monthly
sum in addition to your interest repayments. With this type
of mortgage, your payments go into the tax-free ISA savings
vehicle. The value of your investment hopefully accumulates
over time and any growth is added to your balance free of
tax.
The monthly payment sum is normally calculated using an
assumed growth rate for your ISA plan. However, ISAs are
a bit more flexible than many investment vehicles. With
an ISA mortgage there is not always any fixed term for the
plan. As long as you are keep on making your monthly repayments,
some lenders will let an ISA run until it has built up enough
to repay the loan.
If your ISA performs well, you may be able to repay your
loan well in advance of the planned end of term. You can
often help the chances of this happening by paying an annual
lump sum instead of monthly instalments. Depositing a full-year's
worth of instalments into the ISA vehicle at the start of
each year means that the investment should grow more quickly
over time - the sooner you make a deposit, the sooner it
can start growing.
You can usually arrange insurance to cover your investment
contributions in the event you cannot pay due to accident,
disability, redundancy, death, critical illness or any of
the other phenomena usually covered by protection products.
You may also require separate life insurance to ensure that
the loan can be repaid if you die before it is paid off.
