Life Time Mortgages

Drawdown Mortgages

This type of lifetime mortgage works in a similar way to the roll-up mortgage. A maximum borrowing amount is agreed between the borrower and the lender. This amount is based on the property being used as security and, therefore, the maximum amount is normally no more than approximately 80% of the value of the property, at the time of valuation.

The borrower then has total flexibility surrounding how much of the maximum they borrow at any one time. It may be that they draw down a lump sum a year, or less frequently; alternatively, there may be a smaller monthly draw down. For example, if the maximum amount agreed is £100,000, it could be taken out as £50,000 immediately, with the remaining £50,000 being used as a regular smaller drawdown of say £5,000 a year for the next ten years.

Key Advantages of a Drawdown Mortgage
One of the key advantages of this type of mortgage is that you will only be paying interest on the amount that has been drawn down. This means that the borrower benefits from the security of knowing that the finances are available if they are required, but without having to pay the interest on the amount until it is actually utilised. Of course, this sort of facility comes at a price and as a general rule this type of mortgage will have higher interest rates and will have larger penalties for early withdrawal.

The entire amount borrowed, plus any interest will be payable at the end of term, when the property is sold or when the owner (or all co-owners) die.