Taking out a lifetime mortgage can help homeowners fund their retirement, using the equity built-up in their property.
Releasing equity in stages is known as ‘drawing-down’. Read on to find out how drawdown lifetime mortgages work.
Like a lifetime mortgage, you are taking out a loan from the equity built-up in the property you own. With these deals, you are agreeing to a certain percentage that will be given up at final sale, when both you and your partner either die or go into permanent care. You may choose to withdraw the funds as a lump-sum or as small regular payments, to provide you with a steady income. This is what is known as a ‘drawdown’ lifetime mortgage.
With a lifetime mortgage of this type, you only pay interest on the funds that are drawn down with each instalment. Using this method, you can reduce the amount you pay in interest at the end of the lifetime mortgage, as you are only withdrawing funds in small amounts.
The drawdown lifetime mortgage term is concluded when both you and your partner dies or goes into long-term care. When this happens, your named beneficiaries will be responsible for arranging the property sale and settling payment with the mortgage lenders.
To find out more information about Equity Release, take a look at our guide.
Florence and Sidney have chosen to take out a drawdown lifetime mortgage which they can take further funds from, as and when they need a little extra cash. They have agreed on a maximum loan of £64,000, over 15 years, and the interest rate charged will be 6.1%. If they had taken the full lump sum at the start they would have owed a total of £155,565 at full term. However, over 15 years, they withdrew the money in smaller instalments. Doing this saved them money in interest payments and at the end of the mortgage term, their family paid back the debt of £117,388, made up of the sale proceeds from the couple’s home.
Take a look at our Equity Release Frequently Asked Questions for more information on releasing equity from your home.
With any equity release product, it is highly recommended that you first consult a reputable financial advisor and be clear of the potential risks involved. You can get in touch with a specialist mortgage advisor here and get a free no-obligation quote.
I need a little help to understand the process. The adviser guided me through everything and was happy to have my family present during the meetings.
Bill Westwood, London
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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