12/12/2023 0 Comments Home equity drawdownThere is no requirement to repay a lifetime mortgage, as the full loan and related interest are usually repaid from the sale of your home once you’ve passed away, or moved into long-term care. **Please note, this is for demonstration purposes only, and you should seek advice from an equity release expert to adapt this calculation to your individual circumstances.** Repayment In both scenarios you’re borrowing a total of £50,000 over a 10 year period, but the drawdown option saves £6,000, which could go to your beneficiaries. The total amount to repay is £64,000 (£50,000 in capital + £14,000 in interest) You take £20,000 to cover the next five years, and the remaining £30,000 in five years’ time, passing away 10 years after taking out the plan, as per scenario 1. The total amount to repay from the sale of your home is £70,000 (£50,000 capital + £20,000 in interest). You take the full £50,000 as a lump sum payment, and live for a further 10 years. On assessment, your provider allows you to borrow a maximum of £50,000 and offers you a typical interest rate of 4%. Example: How much you can save taking drawdowns vs a lump sum This can save you a considerable amount of money compared with taking the loan as a lump sum, which incurs interest on the full loan amount from day one. The remainder in reserve will not incur any interest until you access it. One of the major benefits of taking your loan incrementally is that you’ll only pay interest on the amount that you’ve drawn down to date. Each drawdown can incur a different rate of interest, however, this will be confirmed in the offer. Arranging this is usually as simple as making a request to your lender, who will send you an offer with terms specific to that individual drawdown of funds. Most providers require the initial lump sum to be a minimum of £10,000 and allow you to retain the rest of your loan as a reserve, however, some lenders may cap the retained amount at between 50-150% of the initial lump sum.Įach drawdown needs to be a minimum of £2,000 at a time, and there may be a maximum number of times you can access funds each year. ![]() ![]() You then split that figure into your chosen initial lump sum, and leave the remaining pre-approved loan amount with the lender until needed, at which point, you arrange a drawdown. First of all, your equity release provider calculates the overall amount you can borrow.
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