Drawdown Lifetime Mortgages and Finance Interest Rates
Interest rates accumulate on a drawdown lifetime mortgage and are added to the final amount owing and recouped through the property sale.
In most cases, those rates are fixed, so you know how much interest you're paying on every drawdown - however, caution is necessary because if you borrow close to the maximum facility, the interest may amount to much more than you borrowed.
Repaying Drawdown Lifetime Mortgage Providers
Affordability checks work differently when applying for a lifetime mortgage. You won't need to make repayments, so your income isn't a deciding factor.
Rather, the lender sells your home when you die or go into care and uses the loan to pay back the debt.
There are eligibility checks, which look at aspects such as:
- Your health - any conditions or serious illnesses can impact the amount available to borrow. However, they usually only become meaningful if you want to borrow a particularly high value or a large LTV based on the value of your home.
- Age - you must be 55 or above to apply. Some lifetime mortgage lenders have upper age caps at which they'll accept new applicants, although that doesn't always apply.
- Property value - usually, the home needs to be worth a reasonable amount to make the loan worthwhile for the lender in terms of interest earned. Usually, the baseline minimum is that the home has to be valued at £70,000 or more - although some lenders will have a higher minimum cap.
- Property type - any home eligible for a lifetime mortgage (whether a lump sum or drawdown product) has to be sellable and without any complex quirks that would make it tricky for the lender to sell the property when the time comes. A standard bricks and mortar building is the easiest prospect.
- Location - applicants must be UK residents and secure a lifetime mortgage against a primary home. That doesn’t mean you can't have a second property, but the security has to be a primary residence.
We always advise you to speak with a lifetime mortgage expert before deciding whether a lifetime mortgage is the right solution and then evaluating the pros and cons of drawdown vs lump sum loans to ensure you get the best deal.
Maximum Borrowing on Drawdown Lifetime Mortgages and Finance Products
The Loan to Value or LTV indicates the maximum a lender will offer as a percentage of the property valuation.
For example, if you own a property worth £500,000 and your selected lender has a 50% LTV cap, you can apply to borrow up to £250,000.
On a drawdown lifetime mortgage, you might negotiate a £50,000 upfront payment and then have access to a further £200,000 in borrowing to drawdown when you need it.
LTVs very much depend on your age, health and property value, although lenders are more likely to approve a drawdown lifetime mortgage for applicants towards the younger end of the age range.
LTV Examples on a Drawdown Lifetime Mortgage
It's impossible to specify the exact available LTV given the number of variables. Still, some lenders will ask for a doctor's report if you have any illnesses or conditions to factor in.
The average LTV is around 50%, although you might be able to borrow up to 55% or 60% of your property value in some scenarios.
As an indication:
- Younger borrowers in good health can usually borrow lower LTVs up to about 40% of the property valuation figure.
- If you have mild health conditions or potential lifestyle factors (such as being a smoker), a lender will usually offer a medium LTV at around 50%.
- Older applicants or those with more severe health issues may be able to borrow higher LTV ratios of around 60%.
How to Get a Lifetime Mortgage With Bad Credit
One of the positives of a lifetime mortgage is that it's possible to secure a sizable amount of borrowing at a fixed interest rate, regardless of whether you have any bad credit issues.
There aren't usually any repayments, so adverse credit isn't as serious an issue as for a conventional mortgage, where a lender needs assurance that you'll be able to keep up with your repayments.
However, there may be mandatory eligibility rules applied by some banks and mortgage providers, so they may reject an application based on bad credit as an organisational rule, regardless of whether it affects your ability to afford the loan.
How Long Does it Take to Get a Lifetime Mortgage on a Drawdown Basis?
Approvals can be very speedy if you have an up to date property valuation and all the requisite paperwork and don't require any further surveys or health reports.
In most cases, it takes a few weeks to approve a drawdown lifetime mortgage brokers and negotiate the rates, so it's wise to build in as much time as you can to avoid rushing an important financial decision.
Alternatives to Lifetime Mortgage Providers
Lifetime mortgages are one of several products that may be appropriate for you, depending on your borrowing requirements and eligibility.
Comparable options include:
- Retirement interest-only mortgages, whereby you repay the interest but not the capital. Like a lifetime mortgage, the property is sold when you pass away or enter into care but belongs to you throughout.
- Equity release products are loans secured against your property, and the value available depends on your equity ownership and the property's value. Lifetime mortgages and home reversion loans are examples of equity release borrowing.
- Reversion plans raise finance by selling a proportion (or all) of your home to a lender in return for a lump-sum payment. You continue to live in your property until you move to a care facility or pass away, with sales proceeds split between the partial owner and your estate.
Speak to an Expert About Interest Only Lifetime Mortgage Options
If you would like further information about drawdown lifetime mortgages or any borrowing structures explored here, please get in touch with Revolution Finance Brokers.
As a whole-of-market, independent broker, we will ensure you pick the most suitable borrowing product at the best possible terms.
Please visit our contact page for the various ways to get in touch.
