ISA Mortgage

An ISA mortgage is effectively an interest only mortgage with an additional investment plan in the form of an individual savings account (ISA). An ISA is a stockmarket based investment that benefits from tax free growth.

Strictly speaking, an ISA is not an investment but a 'wrapper' within which an investment can benefit from tax free growth. Choosing an individual savings account is a subject in itself. For further information about ISAs. (Individual savings plans replaced personal equity plans (PEP's) in the 1999/2000 tax-year, although PEP funds can remain invested.)

Advantages
  • If the ISA performs well you may be able to pay off your morgage early or enjoy a lump sum at the end of the repayment period, in addition to paying off your mortgage.
     
  • ISAs are potentially tax efficient, particularly for higher rate taxpayers.
     
  • An ISA can be selected to suit your circumstances and risk profile.

Disadvantages

  • Your debt remains constant throughout the morgage period.
     
  • You have no guarantee that you will have sufficient funds to pay off the morgage at the end of the repayment period, as the ISA could perform below expectations. (By monitoring your ISA's performance, you could make additional contributions during the repayment period if you felt the underlying fund was under performing.)