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Am I eligible?
ⓘ What's in this guide?
- What is a drawdown lifetime mortgage?
- How does a drawdown lifetime mortgage work?
- Drawdown lifetime mortgage vs lump sum lifetime mortgage
- Benefits and drawbacks of both types of a lifetime mortgage
- How does compound interest work?
- How could a drawdown lifetime mortgage reduce my cost of borrowing?
- Am I eligible for a drawdown lifetime mortgage??
- Is a drawdown lifetime mortgage right for me?
- How does the drawdown lifetime mortgage advice process work?
- Why choose Key as your drawdown lifetime mortgage adviser?
- Drawdown lifetime mortgage FAQs
What is a drawdown lifetime mortgage?
A drawdown lifetime mortgage is a type of lifetime mortgage that allows you to release tax-free cash from your home. This is through releasing in chunks, following an initial lump sum, as and when you need it.
If you’re worried about drawdown lifetime mortgage interest rate accrual, it’s important to note that the interest only accrues on the money you've released. This means you could potentially save a considerable amount in interest over the lifetime of the mortgage in comparison to a lump sum lifetime mortgage.
The following reasons summarise why you may consider a lifetime mortgage:
ⓘ This is a lifetime commitment - check the benefits and drawbacks before going ahead
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Back to "What's in this guide?"
How does a drawdown lifetime mortgage work?
Simply put, a drawdown lifetime mortgage is a way to release funds from your home without having to move or downsize. Firstly, you agree an overall sum of money you can borrow. You then take an initial lump sum and release smaller amounts when needed (subject to minimum amounts).
In addition to the features of a lifetime mortgage, some details of a drawdown lifetime mortgage are:
You can start benefiting from your drawdown lifetime mortgage when you are ready. The following steps are what you can expect as part of your drawdown lifetime mortgage journey:
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We will first find out more about you and your situation, and see if equity release is suitable for you. If it is, we can then agree on an amount you can borrow.
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You can take an initial lump sum, then leave the rest in reserves to be drawn out when you need it.
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Interest is then added to the money you have drawn down – not to the entire available reserve in the drawdown facility.
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There are no monthly payments with this plan. Instead the funds released, plus compound interest, are typically repaid through the sale of the property when the last remaining applicant passes away or moves into long-term care.
- Release funds when needed
A drawdown lifetime mortgage offers more freedom than a lump sum plan, allowing you to release money when you need it.
- Save on interest
A drawdown lifetime mortgage also allows you to potentially save a considerable amount in interest over the lifetime of your plan, as the interest only accrues on the money you’ve released
- Your drawdown facility isn't guaranteed
Your lender may have the option to withdraw your drawdown facility.
- You don't know what interest rates will be like in the future
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 than your original interest rate,
- Lower interest rates
Lump sum lifetime mortgages sometimes come with a lower rate of interest compared to a drawdown lifetime mortgage, which can help reduce your total cost of borrowing.
- Interest rate won’t change
When you release your funds the money released is subject to the fixed interest rate at the time.
- May be more expensive
As compound interest will be rolled up on the money you’ve released, you will end up owing more if you take all your available cash in one go.
- Limited ability to release further funds
With a lump sum lifetime mortgage, 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. This is not guaranteed and also requires advice. This is subject to fees.
ⓘ Illustrative example
If you’re looking for detail on drawdown lifetime mortgages, here is a comparison between a lump sum lifetime mortgage and a drawdown option of £64,000 released over 15 years with an interest rate of 6.1% AER (Annual Equivalent Rate). For illustrative purposes only. The interest rate applied to drawdowns will be the interest rate at the time of the drawdown.
| Options | Initial advance | Drawdown year 5 | Drawdown year 7 | Drawdown year 9 | Drawdown year 10 | Interest charged (15 years) | Total owed (15 years) |
|---|---|---|---|---|---|---|---|
| Single advance | £64,000 | n/a | n/a | n/a | n/a | £91,565 | £155,565 |
| Drawdown | £20,000 | £15,000 | £8,000 | £7,000 | £14,000 | £53,388 | £117,388 |
SAVING £38,177
Benefits and drawbacks of both types of a lifetime mortgage
We understand it’s important you have all the information you need about equity release to make an informed decision in your own time. All our equity release advice relates to Key lifetime mortgages only. Here's some benefits and drawbacks to keep in mind if you're considering a lifetime mortgage.
Lifetime mortgage benefits
Your specialist equity release adviser will explain:
Lifetime mortgage drawbacks
Your equity release adviser will also outline the following important things to think about:
How does compound interest work?
Unless you choose to do so, there are no repayments to make on a lifetime mortgage until the plan comes to an end. As a result, you pay interest not only on the loan itself, but also on the interest already added to the loan. But there are ways you could reduce the total cost of borrowing of your lifetime mortgage.
Interest adds to your lifetime mortgage on a monthly or annual basis - this is dependent on your plan.
During that first period, interest is charged and added to the original loan amount. The original loan is the sum of tax-free cash you unlock from your home’s value.
An example of how compound interest accrues over 15 years
| Product | Balance at the start of the year | MER¹ | Interest added² | Balance at the end of the year³ |
|---|---|---|---|---|
| Year 1 | £81,703 | 6.74% | £5,681 | £87,384 |
| Year 2 | £87,384 | 6.74% | £6,075 | £93,459 |
| Year 3 | £93,459 | 6.74% | £6,497 | £99,956 |
| Year 15⁴ | £209,360 | 6.74% | £14,555 | £223,915 |
Initial release amount of £81,703. Plan subject to a fixed interest rate of 6.74% MER (Monthly Equivalent Rate).
¹ All Key lifetime mortgages have interest rates fixed throughout the life of the plan
² Interest is charged on the balance as at the start of the year, not the original amount
³ The balance at the end of the year including compound interest
⁴ This cycle continues throughout the life of the plan
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How could a drawdown lifetime mortgage reduce my cost of borrowing?
You could save thousands over the course of your plan with a drawdown lifetime mortgage. This is because you only pay interest on the funds you release. Here's an example to help you understand how this could work for you.
ⓘ Illustrative example
This example is for illustrative purposes only. There are two customers with access to a lifetime mortgage facility of £81,703 at an interest rate of 6.74%. Future drawdowns are subject to the prevailing interest rate. Key Market Monitor Q1, 2023.
Customer B saves £32,851 in interest charges
While Customer B still borrows the same £81,703 over 15 years, their total cost of borrowing is lower. This is because they take their money in stages. As a result, interest is only charged when they release their funds.
Customer B saves £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. Axis shows total cost of borrowing.
Am I eligible for a lifetime mortgage?
If you're thinking about releasing equity from your home through a lifetime mortgage, check if you're eligible. You can check this by using our free online calculator.
To take out a lifetime mortgage plan with Key, you must be a UK homeowner:
- Aged 55+ (including all joint applicants)
- With a property worth £70,000+
ⓘ Did you know...
If you're not eligible now, why not try our later life mortgage finder? It may be that we can still help you take control of your finances in later life.
If you are aged 55 or over, you could be eligible for a drawdown lifetime mortgage. If you are searching for a way to access regular or occasional small amounts of money, folllowing an initial lump sum, to help boost your retirement finances, a drawdown lifetime mortgage could be a solution.
You can spend the funds in a variety of ways, whether you are dreaming of a once-in-a-lifetime holiday, want to make home improvements or help a family member.
How does the drawdown lifetime mortgage advice process work?
If you are considering a drawdown lifetime mortgage, then we recommend seeking advice from our qualified experts. Here is how our process works:
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One of our advisers will contact you at a time that suits you.
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We will take time to understand your situation and your needs, so we can find a suitable solution for you.
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Our adviser will then have an open, honest conversation about your options.
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We'll tell you if we do not believe a drawdown lifetime mortgage is suitable for you, and consider your alternative options.
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If it is suitable, we will search the market for the right option for your circumstances.
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We're regulated experts
Key is regulated and a proud member of the Equity Release Council
Trusted award-winners
We've won 80+ awards and 17,000+ excellent Trustpilot reviews, making us the UK's most trusted equity-release specialist
Customer stories
ⓘ Did you know...
Over the years, our customers have benefitted from expert advice, experience and professionalism from Key. We've been rated 'Excellent' on Trustpilot and you can check out the great things our customers have to say about our lifetime mortgage plans.
A drawdown lifetime mortgage is a flexible way to access tax-free funds that can be used in a range of different ways. Some of the more common uses include:
- Pay off your existing mortgage.
- Pay for a holiday.
- Gift family members money for a house deposit or university fees.
- Pay off existing debt.*
- Pay for home improvements.
*However, you should always think carefully before securing a loan against your home to repay existing debt.
Interest rates are liable to change often, so giving an exact figure can be difficult. However, you can see what the interest rates may look like by using our drawdown lifetime mortgage calculator.
Your estimate will provide the interest rate for the initial release amount but the interest rate for any subsequent drawdowns will be subject to the prevailing rate at the time.
If you have an existing mortgage, it will need to be repaid - the funds unlocked from your home with equity release can be used to do this.
Speak to one of our advisers if you want to find out more about paying off your existing mortgage with a drawdown lifetime mortgage. Request a callback or call us direct on 0800 188 4812.
Yes. Any drawdown lifetime mortgage that meets the Equity Release Council's standards lets you transfer the mortgage to a new property should you choose to move. However, this will be subject to the new property meeting the lenders criteria at that time.
Read our drawdown lifetime mortgage articles
A lifetime mortgage isn't something you should rush into. Read our RetireWise articles to learn more about how it works and whether it's right for you.
Page last updated: Monday 23 October 2023