Lump sum vs drawdown lifetime mortgage

Understand your options when it comes to unlocking tax-free funds from your home

What is a lifetime mortgage?

A lifetime mortgage is a loan secured against your home. It lets homeowners aged 55 or over release tax-free funds from the value of their property.

  • You’ll still own your own home, it typically won’t end until you, or the last remaining applicant, pass away or enter long-term care

  • There are typically no monthly repayments, as the loan, plus roll-up interest, is repaid when it ends - you can reduce the long-term cost of your plan by making repayments of up to 10% without any early repayment charges

  • You can release funds from your home in a one-off lump sum or in smaller amounts (drawdown) following an initial release

How does a lump sum lifetime mortgage work?

A lump sum lifetime mortgage lets you get the funds you need in full straightaway.


  • They typically come with a lower interest rate than a drawdown lifetime mortgage, which can help reduce your total cost of borrowing

  • Your interest rate is fixed for the life of your plan, whereas any future release with a drawdown lifetime mortgage is subject to the prevailing fixed interest rate at the time

Potential drawbacks

  • As compound interest will be applied to the full amount you release, you will owe more if you release all your funds in one go. 

  • 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. You will also need to get advice which may carry a fee.

How does a drawdown lifetime mortgage work?

You agree on 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.


  • It offers more freedom than a lump sum plan, allowing you to release money when you need it

  • You can potentially save on interest over the lifetime of your plan, as the interest only accrues on the money you’ve released

Potential drawbacks

  • Your lender may have the option to withdraw your drawdown facility

  • If you choose to make a drawdown, the funds will be subject to the prevailing, fixed interest rate at the time

How could a drawdown lifetime mortgage reduce my cost of borrowing?

As you only pay interest on the funds you release, you could potentially save thousands over the course of your plan with a drawdown lifetime mortgage.

Illustrative example
This example is for illustrative purposes only and uses the average release amount of £81,703 and monthly equivalent rate of 6.74% MER (future drawdowns will be charged at the prevailing interest rate) – Key Market Monitor Q1, 2023.

Customer A
Customer A takes all their cash in one go through a lump sum lifetime mortgage, so interest is charged on the full release amount from day one.

Customer B
Customer B takes an initial loan of £51,703, so interest is only charged on this lower release amount. They then make two further £15,000 drawdowns over time, taking their total release to £81,703.

Customer B saves £32,851 in interest charges
While Customer B still borrows the same £81,703 over 15 years, because they take their money in stages, their total cost of borrowing is lower as interest is only charged when they release their funds. As a result, Customer B saves almost £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.


What are the benefits and potential drawbacks of a lifetime mortgage?

If you're considering a lifetime mortgage, it's important you understand the product in detail.


  • You can unlock cash from your home, tax-free, to help meet your needs in later life

  • You’ll always retain full ownership of your home and can stay in it for as long as you wish with a lifetime mortgage

  • You can choose to make reduced or no monthly repayments to suit your circumstances

  • You’ll never owe more than your home’s worth with a lifetime mortgage

  • You may be able to remortgage your plan in the future to release further funds or secure a better interest rate, although this isn’t guaranteed and may be subject to early repayment charges

Potential drawbacks

  • A lifetime mortgage is a loan secured against your home and subject to compound interest, meaning the amount you owe can grow quickly

  • Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits

  • Equity release may leave you with limited or no property equity remaining

  • Equity release will reduce your financial options in the future

  • A lifetime mortgage is a long-term financial product and is not designed to be fully repaid until the death or entry into long-term care of the last remaining borrower, otherwise early repayment charges may apply


Things to consider

  • All equity release advice relates to Standard Life Home Finance Horizon lifetime mortgages only – a loan secured against your home

  • Unless you decide to go ahead, our service is completely free of charge, as our fixed equity release advice fee of £599 is only payable on completion of a plan