A Beginner's Guide to Mortgages / What is ISA Mortgage


What is ISA Mortgage and is It a Good Choice?

Choosing the right mortgage is not an easy job. It is not only terrifying to take a loan for a home, not knowing what the future will bring but it is also extremely difficult to decide which from so many options available is the best choice for you personally. Most people still go the traditional route but many also decide to take a chance and choose interest only mortgage instead. This option is especially popular among investors and higher rate taxpayers although it has also become popular among the first time buyers because it is less expensive than repayment mortgages. With the interest only mortgage, you pay off the interest rates and not the capital in contrary to the traditional repayment mortgages in which you pay off both the interest rates and the capital. However, you are expected to return the amount borrowed at the end of the repayment period unless the lender can seize your property.

Three forms of interest only mortgages exist in the UK – ISA, endowment and pension mortgages with ISA (individual saving account) mortgage being the most common form. In order to be able to use this type of interest only mortgage, you need to have an individual saving account where you pay a certain sum used to invest in stocks and shares. If you invest wisely, you can pay off your mortgage before the end of the mortgage period (without penalties like in the traditional repayment mortgages), however, there are certain rules and regulations which can be quite complicated for a first time buyer. Most people who use ISA mortgage to buy a home typically seek professional advice in order to be able fully understand how this type of mortgage works as well as to invest their money wisely.

ISA mortgage is always selected according to the buyer’s personal circumstances and risk profile, however, there is no guarantee that the investments will create sufficient gain to be able to pay off the capital at the end of the repayment period. With this type of mortgage, your debt remains constant until the end of the mortgage period and if the investment strategy performs below expectations, you are at risk of losing your home. On the other hand, there is no guarantee that you will be able to pay off the traditional repayment mortgage either and if you fail to pay off several rents, you can lose your home as well. In addition, it is also possible to change ISA mortgage into the traditional repayment mortgage if you fear that you might not be able to repay the capital at the end of the mortgage period although you will be charged penalties for switching type of mortgage or lender, or both.

Whether ISA mortgage is a good choice or not is up to each buyer to decide because no mortgage works for everyone. It does involve a slightly higher risk than repayment mortgages and it is a good idea to discuss with an expert. Other insurance options such as life assurance if you are self employed or a business owner. You also can opt for the opportunity to pay off a mortgage earlier if the investment is performing well.