ISA Mortgages – UK

UK ISA mortgages are interest-only mortgages. In other words, the monthly payment you make towards the loan is only applied towards the interest portion of the loan. When the loan comes to term, you must still pay the capital, or the original amount that you borrowed, or your home will be repossessed. UK ISA mortgages are unique in the fact that they come with an individual savings account that is used specifically to save the money for the capital repayment at the end of the mortgage term. There are two main types of ISA mortgages – UK cash ISAs and equity ISAs.

Cash ISAs

Cash ISAs are low-risk savings accounts where you deposit money into the account on a regular basis. However, unlike a traditional deposit account, you will not have to pay the 20% tax on the interest you earn in the cash ISA. This helps you earn the money for the capital more quickly. Internet savings providers, building societies, and traditional banks all offer this type of ISA, but the interest rates will vary, so it is important that mortgage holders looking for this type of ISA take some time to shop around for the best offer. You cannot invest more than ?3,600 annually in a cash ISA.

Equity ISAs

Equity ISAs are a completely different type of savings structure. These ISAs allow you to invest in the stock market. This makes them more risky, but also provides a greater rate of return if you are successful. You will have to get this type of ISA through a fund manager, who will manage your investments. There are limits as to how much you can put into an equity ISA each year, so check with your investment manager before beginning this type of investment. However, you can usually invest more into equity ISAs than cash ISAs.

Dangers of ISA Mortgages

ISA mortgages are dangerous for most homebuyers because they require a tremendous amount of discipline. Many buyers are attracted to these loans because of the lower monthly payment, but over the life of the loan they are no more affordable than a repayment loan. Also, with ISA mortgages you must be disciplined enough to save enough to clear your entire capital at the end of the mortgage turn. So, in reality, you do not have extra money to spend each month, because the extra pounds are being deposited into your ISA. Since the ISA has a limited amount of investment each year, you may find that it is not enough to pay down your mortgage in the end. Keep these dangers in mind if you really want to look into UK ISA mortgages.