Example of how a drawdown lifetime mortgage could reduce your cost of borrowing Mrs Lewis and Mr Davies both want to release £81,703, but opted to take it out in different ways to meet their requirements.
£81,703 TOTAL BORROWING AMOUNT Lump sum case study
Drawdown case study
£51,703 INITIAL BORROWING
£15,000 YEAR 10
£15,000 YEAR 5
£81,703 TOTAL BORROWING AMOUNT
Mrs Lewis Mrs Lewis decided to take out all her money in one go through a lump sum lifetime mortgage. As interest is charged on the full release amount from day one the total cost of borrowing after 15 years could be £223,915 (based on a monthly rate of 6.74%) on her loan of £81,703.
Mr Davies Mr Davies decided to take out an initial loan of £51,703 to meet his immediate requirements, then make two further £15,000 drawdowns over time (year 5 and 10). As he took out his money in stages, his total cost of borrowing was lower as interest is only charged when the funds were released.
Total cost of borrowing after 15 years £223,915
Total cost of borrowing after 15 years £191,064
Over the same 15-year period, borrowing the same amount of money, Mr Davies saved almost £32,851 in interest charges compared to Mrs Lewis.
This example is for illustrative purposes only and uses the average release amount of £81,703 and monthly equivalent rate of 6.74% (future drawdowns will be charged at the prevailing interest rate) – Key Market Monitor Q1, 2023.
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