Using an ISA to Repay a Mortgage

An ISA (Individual Savings Account) is a tax efficient investment which can be used to repay your mortgage. The idea is the same as an endowment mortgage (if you're old enough to remember these) but the money you save should work harder for you because it is more tax efficient. Unlike an endowment, an ISA does not have life assurance included within the savings plan, so more of your money is invested.

How do ISA Mortgages Work?

Payments to a lender are normally made up of interest and capital - the capital reduces your mortgage balance. If you pay the capital into a savings plan it might enable you to pay a mortgage off sooner or provide you with a surplus at the end of the mortgage term. However, there is no guarantee that this will happen. Basically, if the rate of growth on an ISA (after charges) is greater than the interest charged on your mortgage then the ISA will do better; If the rate of growth is less then a repayment mortgage is better.

This calculator assumes that the payment to the ISA is the same as the capital payment that would have been made to a repayment mortgage. The growth rates used are industry projections and are not guaranteed, they could be higher or lower in reality.