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Lump sum and drawdown mortgages

Lifetime mortgages let you keep 100% ownership of your property and give you a number of ways you can access cash from your home depending on your goals.

If you have a number of large purchases in mind or intend to gift a lump sum to children or grandchildren to use as a deposit to buy their own home, you can consider a single lump sum mortgage. You can return later to arrange another single lump sum release with the same lender.

If you would like an initial lump sum and amounts in the future, you can consider a drawdown mortgage with a future advance arranged. You only pay interest on the amount you borrow and when you need more cash, the lender can quickly make a payment to you.

The higher the percentage of the property value released the higher will be the interest rate you pay as the risk to the lender increases.

Lump sum mortgage plans

Lump sum mortgage plans provide a one-off lump sum amount with no restrictions on how you spend your money.

This is known as a lifetime mortgage which is a loan secured against your home with no monthly repayments and is repaid when it is sold but allows you to live in your property for your lifetime.

The loan can be secured as a variable or fixed rate of interest with an equity lump sum at once, however, if you need smaller amounts over time you can use a drawdown lifetime mortgage.

Other variations can be included such as taking account of your medical conditions with enhancements offering a larger loan or interest plans allowing you to pay off the interest rather than opting for rolling up until you are aged 80.

The interest is typically rolled-up over the life of the mortgage resulting in interest being paid on interest over time, increasing the cost of the loan when it is eventually repaid.

To avoid this, some plans allow you to make a penalty free repayment of up to 10% of the loan and this would allow you to pay the interest as you go along, limiting the amount owed to the lender.

The amount you can borrow is based on the value of your property and your age as lenders offer much larger loan to values (LTV) if you are aged 85 compared to age 55. For a property value of £400,000 lenders would offer the loans shown in the following table:
Your age
Equity released
Loan to value
55 £96,000 24%
60 £136,000 34%
65 £156,000 39%
70 £176,000 44%
75 £200,000 50%
80 £220,000 55%
85 £232,000 58%
A lifetime mortgage allows you to retain ownership of your home without the need to make payments as both the original loan and interest is rolled up to the end of the plan.

As you own 100% of your property you will benefit from equity growth in the future.

For example if your property value is £400,000 and you use equity release with a loan for £100,000 paying fixed interest of 4.2%, with no growth in house prices after 15 years there would be £214,640 of equity. If house prices rise by an average of 3% each year the equity portion increases to £437,827.

Interest rates are historically low with lifetime mortgage plans offering fixed rates from 3.50% subject to eligibility and suitability of plans to your needs.

Drawdown mortgage plans

Lump sum mortgage plans provide a one-off lump sum amount with no restrictions on how you spend your money.

Drawdown mortgage plans (also known as flexible plans) are like lump sum mortgages except they allow you to arrange an initial equity release with a facility to take chunks of equity over time with no restrictions on how you spend your money.

If the maximum equity release is not needed initially, a drawdown mortgage plan lets you arrange a loan to value known as an advance to access this without the need for a further mortgage in the future.

You benefit as you pay interest only on the cash lump sum you need from the advance and this would reduce the total amount of interest payable over the term of the plan.

As an example, if you have a property valued at £300,000 you could agree an equity release loan of £100,000 taking a lump sum of £60,000 initially. You would pay interest on this amount and retain a facility for a further £40,000 with no interest payable.

You have greater flexibility with a drawdown plan rather than a lump sum plan and more control over the amount you take which could help you when claiming means-tested benefits or to fund specific purposes such as home improvements, holidays or covering a large purchase.

In a survey conducted by Just Retirement about why people use equity release people using drawdown the average house price is £292,555 compared to those taking the full lump sum from a lifetime mortgage with a property value of £245,538.

Drawdown mortgages offer the same loan to values (LTV) as lump sum mortgages and for a property value of £400,000 lenders would offer the loans shown in the following table:
Your age
Equity released
Loan to value
55 £100,000 25%
60 £124,000 31%
65 £152,000 38%
70 £176,000 44%
75 £192,000 48%
80 £212,000 53%
85 £216,000 54%
The disadvantage is that the drawdown advance is it can be withdrawn in the future and is not guaranteed to be offered. The interest rate you pay will be the market rate at the time which could be higher compared to the initial cash sum.

The interest rate for the drawdown plan could be higher than the lump sum mortgage plan although this is not always the case with all lenders.

Equity Release



Equity Release Best Buys

These are examples of equity release products we can approach with many more offering interest rates and flexibility to meet your needs.

3.02% Fixed Rate
Interest Roll-Up
35% Loan to Value
£895 Lenders Fee
3.26% APR
2.76% Fixed Rate
Interest Roll-Up
20% Loan to Value
£599 Lenders Fee
2.90% APR
2.83% Fixed Rate
Interest Roll-Up
35% Loan to Value
£0 Lenders Fee
2.94% APR
2.71% fixed Rate
Interest Roll-Up
20% Loan to Value
£0 Lenders Fee
2.80% APR

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  • IMPORTANT

    Equity Release may involve a Lifetime Mortgage or a Home Reversion Scheme. To understand the features and risks, please ask for a personalised illustration. Equity Release may affect your entitlement to means tested state benefits and will impact on the size of your estate. For Equity Release London City Mortgages charge a fixed fee upon completion of £695. For Mortgages a fixed fee is charged on application. Typically this is from £295 up to £495 for the services selected.

  • WARNING

    Equity Release - Equity Released from your home will be secured against it. Mortgages – Your home may be repossessed if you do not keep up repayments on your mortgage or other loans secured against it. Think carefully before securing other debts against your home. The information contained in this website is subject to the UK regulatory regime and is therefore intended for consumers based in the UK.

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