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Drawdown lifetime mortgages

Mark Gregory checked this page for accuracy on 5th May 2022.

As one of the most popular lifetime mortgages, drawdown equity release plans provide a flexible cash reserve facility that offers easy access to your funds.

The drawdown lifetime mortgages we advise on offer flexible management over the frequency and amount of equity withdrawn from your property during the lifetime of your equity release loan.

What is a drawdown lifetime mortgage?

Drawdown equity release schemes were first developed in response to old plans, where homeowners looking to budget over the long-term needed to consider how much money they would likely need in the future. This money was invariably left sat in a bank account, earning less interest than that being charged on the equity release.

Today, by taking a smaller initial lump sum, it means less interest is charged (which means a lower balance) and more equity is retained in the property for future use, if required. A drawdown facility eliminates the need to leave unused equity release funds in the bank, and, instead, leaves surplus cash funds with the lender instead.

This means you are never charged interest on the monies left with the lender, only that which you withdraw.

How do drawdown lifetime mortgages work?

You must own your main residence and be over the age of 55 if you are to release equity from your property.

The lender will then initially calculate your cash reserve facility based on the age of the youngest homeowner in your property, along with the value of your property and in some cases - the health of the applicant. This amount is based on the provider’s loan-to-value percentages, which increase as you get older and so the older you are, the bigger the cash facility you are likely to be offered.

Once the drawdown facility is known, you can then select how much tax-free money you wish to withdraw. Any remaining cash will then be held by the lifetime mortgage provider in a reserve facility. Should additional funds be required in the future, then you can make a drawdown request which can usually be taken in smaller amounts.

Lenders do not charge any administrative or application fees for this, and cash drawdowns usually only take a matter of weeks to receive funds. The interest rate applicable on the cash drawdown will be at the rate applicable at the time of withdrawal.

Drawdown equity release and means-tested benefits

One of the main reasons people choose drawdown lifetime mortgages is because they are less likely to impact means-tested benefits.

With bank savings limits imposed by the Department of Work and Pensions (DWP) and local authorities, it’s important balances are not breached by a release of equity, as this has the potential to affect one’s eligibility for certain means tested benefits.

By using a drawdown lifetime mortgage, we can tailor the expected initial amount to be spent in conjunction with any existing bank balance. By keeping this figure within the guidelines set out by the DWP, you can theoretically avoid losing any mean-tested benefits you already claim for when you take out equity release.

However, before jumping straight in, we advise speaking to one of our specialist drawdown lifetime mortgage advisers for a full evaluation of your circumstances.

What are the advantages of drawdown lifetime mortgages?

  • Drawdown schemes offer flexibility as to when and how much can be withdrawn.
  • Interest is only charged on the actual amount withdrawn, not on funds left in reserve with the provider.
  • A higher maximum cash drawdown scheme is now available using the enhanced lifetime mortgage range.
  • With drawdown mortgages, you retain 100 per cent of the property value and any increase in its future valuation.
  • Funds are accessible quickly and without further administration costs.

What are the disadvantages of drawdown lifetime mortgages?

  • Certain lifetime mortgage providers have the right to withdraw access to your drawdown facility.
  • Drawdowns will be at the interest rate applicable at that time and can be higher than the initial lump sum.
  • Certain companies limit the size of the drawdown facility dependent upon the size of the initial loan.
  • Once the whole reserve has been spent, further advice and an additional borrowing application are required.

These are drawdown lifetime mortgage schemes. To understand their features, benefits and risks, please contact Equity Release Supermarket for a no obligation, personalised, key facts illustration. All drawdown quotes can be tailored to your own circumstances and you are under no obligation to proceed.