ISA Mortgage

ISAs (Individual Savings Accounts) replaced the abolished PEPs (Personal Equity Plans)and have a tax free status which can be especially attractive to high rate tax payers.

ISAs benefit from tax-advantaged growth. Some lenders may allow an ISA to be used as a repayment method for interest only mortgages.

There are three investment options with an ISA: Cash, Life Assurance and Equities. Borrowers should make themselves aware of the risks attached to using an ISA as a repayment method for an interest only mortgage.

With ISAs there is an annual investment maximum. The funds accumulate free of income and capital gains tax. There is no tax on withdrawal.

ISAs can be used as a stand alone savings option or they can be combined with other investments eg endowments.

They provide a flexible savings plan allowing for varying investments to be made into the ISA. A lump sum can be paid into the plan or combined with regular investments. Payments may also be made as on an irregular basis as and when capital is available. Where income allows, regular investments into the plan can be increased. This can elevate the chance of paying off the mortgage early.

ISAs are not a fixed term savings plan and can be encashed, without penalty, in full or in part at any time. ISAs provide flexibility but the minimum age at which stocks and shares or life insurance ISAs can be effected is 18. Lenders will not consider borrowers below this age.

Like all investments of this type there is no guarantee that the accumulated capital will be sufficient to repay the loan at the end of the term. The borrower will have to meet any shortfall.

ISAs do not contain a life assurance element and this type of mortgage should be protected by some form of life cover.