Lump sum vs drawdown With a Key lifetime mortgage, there are two ways you can access your tax-free cash. One is taking all of the money in one go; known as a lump sum, and the other enables you to take it in chunks as and when you need it, following an initial release. This is
known as a drawdown lifetime mortgage. How a drawdown lifetime mortgage works A drawdown lifetime mortgage offers more freedom than a lump sum plan, allowing you to release money when you need it. Firstly, you agree an overall sum of money you can borrow. You then take an initial sum and have the option to release further amounts when needed, subject to a minimum release.
Things to consider
Your lender may have the option to withdraw the additional borrowing facility and if you choose to make a drawdown, the funds will be subject to the prevailing, fixed interest rate at the time. This new rate may differ from your original
interest rate.
Benefits of a lump sum lifetime mortgage Lower interest rates
Benefits of a drawdown lifetime mortgage More flexibility Release funds from your cash reserve as you need it. This gives you the freedom to use as little or as much as you want depending on your circumstances at the time, subject to criteria. Smaller impact on benefits Because you’re in control of when you release the money, you can organise drawing down funds in a way that will help reduce the effect on any means- tested benefits. Less interest to pay Interest only accrues on the funds you draw down once they’re released, so you’ll have less of it to pay. Plus, no interest accumulates while your funds are still sitting in the reserve.
Lump sum lifetime mortgages sometimes come with a lower rate of interest compared to a drawdown lifetime mortgage. Interest rates don’t change When you release further funds from your drawdown lifetime mortgage, the money released is subject to the prevailing interest rate at the time. With a lump sum lifetime mortgage, however, your interest rate is fixed for the entirety of your plan. Taking all your available cash in one go will limit your future borrowing options. As interest accrues on the full amount taken from day one, the amount you owe will increase faster.
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