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Mortgage Glossary
Drawdown Mortgages
 
Perhaps you have reached a blank point in life so to speak, where you really feel financially blocked; this means that you own a beautiful property with a value that equals a pretty nice sum of money, but your present income is not enough to cover your expenses. What should you do? You can turn to the option of a mortgage scheme, so that you start turning your property’s walls into cash.

Could a Drawdown Mortgage be a solution for you? Yes, and because there is a great variety of options available nowadays on the market, and you may choose the option which is most suitable to you and your family’s needs. Certainly you should know that before turning to the option of equity release mortgage, roll-up mortgages, drawdown mortgages or any other home income plans you should definitely consider other alternatives too (like that of downsizing for example), and only when you exhausted your options should you settle for a lifetime mortgage plan.

What all the above mentioned schemes have in common is that your debt is being fully paid off at the time your house or property is sold. Drawdown mortgages have a little bit of advantage to the other schemes and this can be found in the way the scheme operates. When contracting this type of mortgage between you and the lender there will be a set amount of money, but you may withdraw only a percentage of that sum (only what you need), and the great advantage is that the interest doesn’t accumulate on the whole amount, but only for the sum you have withdrawn. Surely in a few years time when there is again a need of a lump sum you can withdraw the remainder of the money.
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To exemplify it, you may contract an amount of £100,000 secured against your home, and at first you need say £40,000, you withdraw that amount and interest starts accumulating on the £40,000, and not on the whole £100,000. At any other point in life when you need money you will know that you still have £60,000 available. It may sound easy, but certainly this scheme also has some regulations and criteria which are taken into consideration; for example, your home will be firstly evaluated and the sum you are eligible to borrow will not exceed 80% of its real value. This 80% of its real value is a rule of thumb as you already may know for most borrowing schemes where your home becomes secured; this is mainly because the real estate market is in a continuous fluctuation, plus there must be a sort of assurance for the lender that even if the home will be sold at a lower amount, he will still get back the whole amount.

Drawdown mortgages can be “scheduled” and here lays the flexibility of this program, because if following the above example, where your whole amount is £100,000 and you take out half of it in the form of a lump sum, the remaining £50,000 could be organized so that you withdraw say £10,000 every year for 5 years, or any other variations. Then, you can consider that annual £10,000 as a regular income in addition to your already stable income, and you will see that this will add to the flexibility of options with which you can treat your financial situation.

In any case, such a decision like applying for a drawdown mortgage lies entirely on your free will, and you shouldn’t let yourself influenced or manipulated by anybody, mainly because this is a very important decision which needs time and calculation. If you feel uncertain about whether to proceed to such a plan or not, then it is high time you consult one of our experts who will serve you with some precious advice on what your options are.

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