ISA Based mortgages

WelshWoofer

Hi,
5 years ago I took out a 25 year ISA based mortgage (originally on the advice of an indepepndent financial advisor) with a building society -
the interest only payments are now transferred to Northern Rock whilst the ISA part is still with Legal and General.
The statements from Land G over recent years have all said that the ISA is on plan to acheive the mortgage target (approx 88,000 pounds) but I have become increasingly worried about whether this is the right thing to continue with.

Does anyone else have a similar arrangement ?
Is this still a wise move or should I try switching to a straightforward repayment deal?
I'm useless with mortgage jargon and got a bit bamboozled into this in the first place, so please be gentle when trying to explain things!!

Thanks
R

HelpWhereIcan

IMO it comes down to one thing. How sure do you want to be that your mortgage will be repaid at the end of the mortgage term?

If you need to be 100% sure, the only thing to do is have a repayment mortgage.

If you are willing to take the gamble that your ISA may not grow quickly enough to make the £88,000 in return for the chance of an excess, then maybe you are ok staying as you are.

From what you have posted, I would guess that the 1st probably describes you best. Just my opinion.

Hope this helps

Ian_W

Hi Rachel,
The principal of an ISA mortgage is the same as an endowment mortgage. You borrow a wodge of money to buy your home and just pay the interest on the amount you owe. At the same time you put money into an investment, in this case an ISA, which you hope will grow fast enough to pay off a lump sum equal or bigger that what you owe at the end. The ISA name is just a wrapper that means you don't pay tax on the proceeds, it's what it's invested in that determines how well it performs. ISAs are a lot more transparent and easier to understand than endowments but there is always a risk they won't perform as well as expected or may suffer a stock market crash at the wrong time.

In contrast a repayment mortgages do what it says on the tin. Some of your money pays the interest and some goes to pay off the capital you owe so that at the end of the mortgage it's paid off. No if's, buts or maybes and no risk of a shortfall.

It follows therefore that IMO repayment is best but as you're part way through and your ISA is performing on track then there is no need to from one extreme to the other. Contact NR and discuss switching part of your mortgage to repayment if you can do that without penalty, if you can't see if you can overpay on your mortgage and do so at a rate you're comfy with. When you remortgage in the future try to switch more each time to repayment so you're less reliant on the ISA to repay the mortgage.

Don't bin your ISA, you get a yearly allowance on a use it or lose it basis and as I said the proceeds are tax free, so it's a good savings vehicle anyway. Whether L&G are the best or whether you've got it in their best performing funds I couldn't advise, you'd really need to see an IFA on that one.

Tried to keep it simple and jargon free but HTH.

dunstonh

I use an ISA against my mortgage. Although I wouldnt use L&G. At last check I was around 40% higher than I needed to be to be on track. The concept of using investments again long term borrowing isnt flawed. It was a case that the old product "endowment" had the flaws. Plus it is also something that should only be done by someone who accepts the risks and is hands on with their investments (or pays someone to be hands on).

I have a couple of others on the clients and I just checked them and one of them is 51.3% higher than he needs to be to be in track. He is higher risk than me though!

So, the concept is fine and it can work big time for you if invested correctly buts it not something for the novice or for someone that doesnt want to monitor or pay someone to monitor the investments.

WelshWoofer

Thank you to all of those that posted advice. I've decided to get an IFA to have a look at it and see what they recommend.
If I can afford it I'd like to swtich eventually to a repayment vehicle and keep the ISA on as it's a way of forcing me to save.

Thanks again
R

Ian_W

I think that's the right way to go rachel, you don't need to move from one to another in one jump, you can do so over a few years. I certainly wouldn't disagree with dh but I don't he himself would suggest that it's for the vast majority.

I would check whether L&G is the best place for your ISA because they can be easily trandsfered between providers but are a good savings/investment vehicle. BoL.

dunstonh

I think that's the right way to go rachel, you don't need to move from one to another in one jump, you can do so over a few years. I certainly wouldn't disagree with dh but I don't he himself would suggest that it's for the vast majority.

I certainly agree with that. Its not for the lazy investor or those with a low risk profile. The potential to make lots of money is there but there is the potential for shortall as well.

suffolkb

I am using an ISA for my interest only mortgage and came across a problem when I lost my job.The DWP regards the ISA as "savings" and so refuse to give any JSA as you are above the savings limit.