Mortgage dilemma

 

I am taking out a mortgage with my boyfriend and he is intent on taking out an ISA. I don't like risk but he will not consider a repayment mortgage until we are going to be in a house for a long period of time. I've also heard that there is a possibility that the ISA may not pay for the mortgage in 25 years time. Is this true? I hate risk but should I just bite he bullet and go for a corporate bond ISA? BL,London.

Patrick Bunton from mortgage broker London & Country Mortgages says: An ISA is an investment in stocks and shares which can go up as well as down, so when it the time comes to pay off the mortgage there is the risk that the final amount received will not be enough to cover it. With a repayment mortgage there is no risk, as it is guaranteed to pay off the mortgage in full at the end of the term.

You say your boyfriend won't consider a repayment mortgage until you are likely to be in a house for a long time. It sounds as though he has been told that if you are planning to move after only a few years you should avoid a repayment mortgage as with only a few years of repayments, you will only have paid off a small amount of your capital before you move. This was a popular argument for endowment mortgages that was put forward a few years ago - and in those days it was true. When interest rates were high in the 80s and early 90s, it was true that after only a few years you may have paid off little of your capital on a mortgage because most of your monthly repayments would be made up of interest.

But now this is no longer the case. With mortgage rates of around 7% and expected to remain around this level or go even lower over the next few years, you should have paid off some of your capital even after two or three years.

Anyone who justifies recommending that you should get an interest-only (ie endowment, ISA, or pension) mortgage because you are planning to move in a couple of years should be treated with extreme caution as an adviser, because this argument no longer holds true.

If you don't like risk and will lose sleep worrying about whether the investment performance of the ISA will pay off the mortgage I would recommend a repayment mortgage instead.