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, visit
our personal finance directory. (Individual savings plans
replaced personal equity plans (PEP's) in the 1999/2000
tax-year, although PEP funds can remain invested.)
ISA Mortgages
Advantages If the ISA performs well you may be able to
pay off your mortgage 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, particulary
for higher rate taxpayers. An ISA can be selected to suit
your circumstances and risk profile.
Disadvantages Your debt remains constant throughout the
mortgage period. You have no guarantee that you will have
sufficient funds to pay off the mortgage 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.)
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