Drawdown Lifetime Mortgage
A drawdown lifetime mortgage offers flexible management over the frequency & amount of equity withdrawn from your property, during the lifetime of the equity release loan.Now established as the most popular form of lifetime mortgage, drawdown equity release plans provide you with control and long-term interest savings by retaining equity within the property.
What Is A Drawdown Lifetime Mortgage?Drawdown equity release schemes are a core lifetime mortgage with the inclusion of a drawdown facility. They were developed in response to old plans where homeowners looking to budget over the longer term needed to take into account how much they would likely need, over say a 5 year period. This was then translated into a single lump sum. Part of the tax-free cash would then be spent immediately, however the surplus would be just left in the bank. This didn’t constitute best advice. Having equity release monies sat in a bank account unused and earning little interest, did not make financial sense when the cash withdrawn from the lender was being charged at a much higher rate of interest. By taking a smaller initial lump sum means less interest is charged, which has the knock on effect of lower balance and more equity retained in the property for future use if required. Therefore, the drawdown equity release model was born, which basically eliminated the need to leave unused equity release funds languishing in the bank. Instead, of taking the whole release of home equity, you can take an initial lump sum, but leave the surplus cash funds with the lender and not in your bank. Monies left with the lender are NOT charged interest.
How Do Drawdown Lifetime Mortgages Work?To qualify for a drawdown lifetime mortgage scheme you would need to be over the age of 55 & own your main residence. The lender will initially calculate your cash reserve facility based on the age of the youngest homeowner and the value of the property. This is based on their loan-to-value percentages which increase as you get older and reflect the increasing maximum cash reserve facilities available too. Once the drawdown facility is known, you can then elect how much tax-free cash you wish to withdraw. Any remaining cash after this will be held by the lifetime mortgage provider in a reserve facility. Should additional funds be required anytime in the future, then you can make a drawdown request which can usually be taken in as smaller amounts as £2,000 a time. Lenders DO NOT charge any admin or application fees for this and NO legals are required. Timescales for cash drawdowns are usually only a matter of a few weeks to receipt of funds.
Popular Application For Drawdown Equity ReleaseThe benefits of equity release drawdown can be illustrated when we see their application in advising on equity release in conjunction with receipt of means tested benefits. With bank savings limits imposed by the DWP and local authorities, it’s important balances are not breached by a release of equity and the resultant effect being potential loss of benefits. Therefore, using the 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 Department of Work & Pensions guidelines you can have both the equity release cash to spend and maintain receipt of important means tested benefits.
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 you retain 100% of the property value and any increase in its future valuation
- Funds are accessible quickly and without further administration costs
Disadvantages of Drawdown Lifetime Mortgages
- Certain lifetime mortgage providers have the right to withdraw access to the drawdown facility
- Drawdowns will be at the interest rate applicable at that time & 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 is required
These are lifetime mortgage drawdown schemes. The understand their risks and features please contact Equity Release Supermarket for a Key Facts Illustration.
Further information on the best drawdown schemes & maximum amounts you can borrow, follow these links: –