What is a lifetime mortgage?
A lifetime mortgage is a loan secured against your home and is a way for homeowners aged 55 and over to unlock some of the value tied up in their home. There are typically no monthly repayments as the loan, plus compound interest, is typically repaid through the sale of the property when the last remaining applicant passes away or moves into long-term care.
But did you know that you can receive your tax-free funds in two different ways? The two forms of lifetime mortgages are a lump sum and drawdown. With our specialist advice, why not let us help you work out the approach that’s most suitable for you and your personal circumstances.
ⓘ Equity release is a lifetime commitment - check the benefits and drawbacks before going ahead.
Get in touch with The Equity Release Experts now on 0800 188 4812 or by requesting a callback. We’ll talk you through the flexible features available with a lifetime mortgage.
Your lifetime mortgage options
As with any form of equity release, neither lifetime mortgage option is without their risks and things that you’ll need to think about first. Our equity release advisers are here to make sure you know exactly what’s what if you’re thinking about releasing equity.
Lump sum lifetime mortgage
With a lump sum lifetime mortgage, there really is no mystery to it. When you choose to unlock some of the value of your home with a lump sum lifetime mortgage, you’ll receive your funds in one lump sum.
Benefits
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They typically come with a lower interest rate than a drawdown lifetime mortgage, which can help reduce your total cost of borrowing
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Your interest rate is fixed for the life of your plan, whereas any future release with a drawdown lifetime mortgage is subject to the prevailing interest rate at the time
Drawbacks
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As compound interest will be rolled up on what you release, you could owe more if you release all your funds in one go and will limit your future borrowing options
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You can’t release further funds unless you apply for a further advance – this is subject to the lender’s criteria, your age and your property’s value at the time of application
Drawdown lifetime mortgage
If you decide on a drawdown lifetime mortgage, you agree an overall amount you can access. You'll receive an initial lump sum of tax free funds, after which you can take more from the amount still available when you next need it (subject to minimum amounts).
Benefits
- It offers more freedom than a lump sum plan, allowing you to release money when you need it
- You can potentially save in interest over the lifetime of your plan, as the interest only accrues on the money you’ve released
Drawbacks
- Your lender may have the option to withdraw your additional drawdown facility
- If you choose to make a drawdown, the funds will be subject to the prevailing, fixed interest rate at the time. This may be higher or lower than your original interest rate
Why not use our equity release calculator to see what you could unlock?
How could a drawdown lifetime mortgage reduce my cost of borrowing?
As you only pay interest on the funds you release, you could potentially save thousands over the course of your plan with a drawdown lifetime mortgage.
Illustrative example
This example is for illustrative purposes only and shows there are two customers who both have access to a lifetime mortgage facility of £81,703 at an interest rate of 6.74% MER (Monthly Equivalent Rate) (future drawdowns will be charged at the prevailing interest rate).
Customer A
Customer A takes all their cash in one go through a lump sum lifetime mortgage, so interest is charged on the full release amount from day one.
Customer B
Customer B takes an initial loan of £51,703, so interest is only charged on this lower release amount. They then make two further £15,000 drawdowns over time, taking their total release to £81,703.
Customer B saves £32,851 in interest charges
While Customer B still borrows the same £81,703 over 15 years, because they take their money in stages, their total cost of borrowing is lower as interest is only charged when they release their funds. As a result, Customer B saves almost £32,851 in interest charges over the total life of their plan. This example is over 15 years but it could be longer or shorter.
