An ISA - individual savings accounts - were introduced in 1999 by the UK government in a bid to cultivate the savings habit. They can also be used as an investment vehicle to pay off an interest-only mortgage.
The ISA is made up of two parts, an equity element (stocks and shares) and a cash element.
The maximum that can be invested in any one financial year is £7,000.
Contributions can be made to either element separately, i.e. to the stocks and shares mini-ISA or to the cash mini-ISA. But the maximum allowed with regard to the cash mini-ISA is £3,000, leaving £4,000 investment available for stocks and shares.
However, the full £7,000 allowance can be invested solely in the stocks and shares element, but only if this is done via a maxi-ISA.
ISAs have proved a popular way of paying off an interest-only mortgage, not least because of the tax benefits.
Regular monthly payments can be made towards the ISA - provided the limits outlined above are not exceeded in any one year.
The monthly payments are set at a level sufficient to return a lump sum at the end of the mortgage term to pay off the capital.
And because fund growth is free of capital gains, the mortgage is likely, overall, to be cheaper. If the investment fund performs better than expected, the mortgage can also be paid off sooner.
However, there is a question mark over the long-term future of the ISA, which the government has only guaranteed in its present form until 2010.
Other points to consider, too, include shortfall dangers if funds don't perform as expected, and the requirement for life assurance to cover premature death.
