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Say Yes to ISA Mortgages for a Convenient Mortgage
Repayment
Customers who opt for an interest only mortgage, and feel
themselves fortunate at the extraordinarily low monthly
installments, wake up. The mortgage may be fast approaching its
repayment.
Interest only mortgages require only the interest to be repaid
as monthly installment. This means that the mortgage amount
continues to be the same even when the mortgage reaches its
maturity date.
Paying the whole amount of the mortgage all at once will be
difficult. Therefore, it will be prudent to plan the mortgage
repayment right from the start. ISAs or individual savings
account mortgage will be a proper choice in this direction.
Individual savings accounts were launched in April 1999, to
replace Tax Exempt Special Savings Account (TESSA) and Personal
Equity Plans (PEP).
There are two benefits of individual saving accounts. First,
it grows unhindered because the government offers tax relief to
people who save in individual savings account. Second, this
accumulated amount, after growing up to a sizeable figure, will
repay the mortgage.
Individual savings account is not exactly an investment. It is
in fact a protective cover that allows the other investments to
grow tax-free. These are for all classes of people, as long as
they are aged 18 years or above. They need not necessarily be
taxpayers, but they need to be residents of the UK.
However, individual savings accounts have yet to make their
mark as a repayment option. The principal problem is the amount
of jargons that people will have to deal in, like maxi ISAs, mini
ISAs, equity ISAs etc. It becomes intricate for a
non-professional to understand what each of them is, and how it
works.
According to the rules, a customer is allowed to save only up
to ₤7000 a year. This can be saved all in a single maxi
ISA, or broken up into three mini ISAs. Confused as to what maxi
ISAs and mini ISAs are! Let us explain.
A mini ISA can include only one component of investment. Maxi
ISA on the other hand includes more than one component. The
components of the ISA can further classify them into cash ISAs
and equity ISAs. Cash ISA is one where the customer saves in the
form of cash. However, there is a limit to cash savings. The
maximum cash savings admissible is ₤3000. The rest must be
saved in the form of stocks, shares and life insurance. The
latter is known as an equity ISA.
One point on which the ISA mortgages scores over other kind of
repayment vehicles is that they allow the mortgagor to access
cash as and when they want. Pension fund on the other hand, is
inaccessible for the customer until he reaches the age of 50.
In addition, there are no or lesser penalties if the customer
fails to pay to the ISA. The customer can discontinue payment to
the ISA anytime that they desire. Endowment funds on the other
hand charge heavily for defaults in payment.
However, the limit on the amount of savings is seen as a
drawback of ISAs. One may not be able to repay the mortgage
earlier or before maturity even if they have resources to effect
the repayment.
The presence of the shares as a form of savings gives it an
unpredictable character. The stock market is highly volatile.
This means that there is no guarantee as to the final repayment
of the mortgage, since stocks and shares do not always follow an
ascending path.
Nevertheless, the current trends of the stock market heavily
recommend the equity ISA. Besides equity ISA have a higher rate
of growth than the cash ISAs in the long run.
The customer will have to be very careful in deciding which
ISA to opt for. If the ISA does not fare well, and the final
amount does not match up to the amount of mortgage taken, then
the customer will be in a tight spot. This is because he will
have to pay the deficit from his own resources, and can even lead
to repossession of ones home.
James Taylor works for the personal loan web site http://www.chanceforloans.co.uk.
To find a Personal loan and mortgage that best suits your needs
visit http://www.chanceforloans.co.uk.
 MORE RESOURCES updated Thu. February / 09 / 2012
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