Drawdown lifetime mortgage
A drawdown lifetime mortgage is a type of equity release plan that enables you to take cash from your home in chunks, as and when you need it.
Drawdown lifetime mortgages have become the most popular type of equity release plan – taken out by over half of new customers in 2020*. They are more flexible than lump sum lifetime mortgages, as you have the option to release your cash over time, rather than as a single lump sum.
How does a drawdown lifetime mortgage work?
- You’ll get an initial lump sum followed by an approved cash facility that you can ‘draw’ from as and when you like.
- There will be a minimum amount that you can draw down at any one time – this is set by the lender and may vary depending on which plan you take.
- Interest is only charged on the cash which you have drawn down, meaning this can be a cost-effective method of borrowing.
- When you want to draw down more cash you will apply directly to the lender – usually it takes a couple of weeks for the money to land in your bank.
Drawdown versus lump sum
A drawdown lifetime mortgage is a variation of a lump sum lifetime mortgage (like a roll-up lifetime mortgage). Here are the main differences:
- Less interest to pay – interest is only added to the amount you draw down, not on your available balance
- Security for the future – you have the peace of mind knowing that the money is there, should you need it in the future
- More flexibility – you can release cash from your reserve as and when you need it
- More inheritance – less to pay in interest means there could be more money left for your loved ones
- Greater control – you can organise your finances in a way that won’t affect your means-tested welfare payments and benefits, for example not having over £10,000 in savings
Will I qualify?
Like other types of equity release plans you will need to meet some basic criteria in order to qualify for a drawdown lifetime mortgage. You must be:
- Aged 55 or over (both if in couple)
- A homeowner of a property in the UK worth at least £70,000
- Resident in the UK
- Able to pay off any outstanding mortgage with the money from your equity release plan
Considering a drawdown lifetime mortgage?
If you’re considering a drawdown lifetime mortgage it’s important to get advice from an experienced and suitably qualified adviser. That where we can help! Book your free initial assessment today.
Your adviser will be able to explain how:
- A drawdown lifetime mortgage is a loan secured against your home. It will reduce the value of your estate and may affect your entitlement to means-tested benefits
- Compared to some other types of lifetime mortgage Interest rates can be slightly higher with a drawdown plan
- Different interest rates can apply each time you draw down cash – depending on the prevailing interest rates at the time this may be greater than your initial rate
- There can be limits to the number of times money can be released in a certain period and how much you can withdraw at a time
- If you want to pay off the loan early repayment charges (ERCs) can be substantial
- Further amounts aren’t guaranteed – if you want to increase the total amount of equity you have agreed to drawdown over a specific period, you’ll have to apply for a further advance
*Equity Release Council: Q2 2020 equity release statistics