What is a drawdown lifetime mortgage?
A drawdown lifetime mortgage is one of the most flexible ways to access tax-free cash through equity release. Rather than taking a single lump sum, it allows you to receive an initial lump sum up front, with the option to make further withdrawals from a cash reserve facility whenever you need to in future.
Crucially, you are not charged interest on the money sitting in your cash facility until you actually draw it down. Because you only pay interest on the funds you’ve released, a drawdown facility tends to suit homeowners who want to make gradual withdrawals, for example for home improvements, rather than borrowing one large fixed sum on day one.
Like any lifetime mortgage, the loan is secured against your home and is normally repaid from the sale of the property once you move into long-term care or pass away.
Everything you need to know about drawdown lifetime mortgages
When considering equity release, it’s worth looking closely at your options, including a drawdown lifetime mortgage, and understanding the advantages, disadvantages, and eligibility criteria before you commit to a plan.
Offering whole-of-market advice, our specialist equity release advisers work closely with you and your family to answer any questions you might have, helping you find the equity release products that best match your circumstances, both now and in later life.
How does it work?
You’ll work with an equity release adviser to establish how much equity you could release from your property, and whether you qualify. Your adviser will help you find a plan and an arrangement suited to your circumstances, with the lowest overall plan costs.
Once the paperwork is complete, you’ll receive your initial lump sum, with the remainder of the total sum you’ve been approved for held back in your reserve facility. That money sits ready for you to draw down in smaller amounts, as and when you need it, up to the minimum amount and maximum limits set out in your personalised illustration. You’ll only start paying interest on the money once it’s actually released. Interest builds on each withdrawal from the date it’s paid into your bank account, not before.
you only pay interest on the cash you’ve actually released, not the full amount you’ve been approved for.
More control over when and how much you drawdown compared with a lump sum lifetime mortgage.
You retain ownership until you move into long-term care or pass away.
A protection required of all Equity Release Council-approved plans, meaning your family will never owe more than the home is worth, however much interest builds up over time.
Interest rates agreed at the outset, so you know the cost of any future withdrawal in advance regardless of a future increase in the prevailing rate elsewhere.
Drawdown lifetime mortgages sometimes carry a slightly higher interest rate than an equivalent lump sum lifetime mortgage.
Releasing equity, and any further money you draw down later, can affect your eligibility for means-tested benefits.
Additional borrowing reduces the value of your estate and the funds available for long-term care later on.
Some plans limit how many times a year you can request a withdrawal, or set a minimum amount per drawdown request.
If you want to release more than your agreed reserve, you may need to apply for a further advance, and that application isn’t guaranteed to be approved.
Advantages and disadvantages of a drawdown lifetime mortgage
Am I eligible for a drawdown lifetime mortgage?
As with other equity release plans, eligibility depends on your age and your property value. If you’re 55 or over, and you (or the youngest homeowner, where you’re releasing equity jointly) own a home in the UK worth £70,000 or more, you may be eligible to release equity through a drawdown lifetime mortgage.
Try our free equity release calculator today to get an idea of how much tax-free money you could release from your home.
Why You Need Advice
There’s no one-size-fits-all answer here, which is why we look at your full circumstances and what you intend to use the funds for. You must take advice from a qualified adviser, such as those at Bower, before taking out any plan.
Lump sum vs drawdown
There are two main types of lifetime mortgage: lump sum and drawdown. A lump sum lifetime mortgage releases a single lump sum in one go. A drawdown lifetime mortgage instead releases a smaller initial loan, leaving the rest of your agreed funds in a reserve for future withdrawals.
If you’re planning a one-off purchase, or your current income already covers your day-to-day lifestyle, a lump sum plan may suit you better. If you’re planning a larger renovation, expect to need additional funds over several years, or simply want the option of regular top-ups to your income, a drawdown facility is often the better fit, since it limits how much interest builds up compared with borrowing the full sum from day one.
Common Questions about Drawdown Equity Release
Alongside the interest charged on the money you release, most plans involve some combination of an advice fee, a lender’s set-up fee, and administrative fees (such as valuation or legal costs). Your adviser will set these out clearly in your key facts illustration before you proceed, so there are no surprises about pay-away costs versus the interest that accrues on borrowing over time. Because compound interest is charged on lifetime mortgages, taking only what you need via a drawdown facility, rather than borrowing more funds than necessary up front, is one of the simplest ways to keep the total cost of the loan down.
Lifetime mortgages are designed to be repaid in full when you pass away or move into long-term care, usually through the sale of your home. If you choose to make monthly repayments or ad hoc payments towards the balance before then, you may face early repayment charges, though this varies by product, and some lenders let you overpay a set percentage of the balance each year without any charge. Making monthly interest payments, where your plan allows it, is one way to stop interest compounding on top of itself and keep the eventual amount owed closer to your original borrowing.
Releasing cash from your reserve facility is straightforward. Contact your existing lender, who will send an offer letter confirming the amount on offer and any terms attached to that particular withdrawal. Read it carefully, then sign the acceptance form if you’re happy to proceed. This is usually quicker than your initial borrowing, since further drawdowns don’t typically require fresh financial or solicitor advice, though minimum amounts apply on most plans, so very small requests may not be possible.
If you’ve used up your reserve facility entirely, you still have options. Your existing lifetime mortgage lender may be able to offer a further advance if your property value has risen and there’s more equity available. Alternatively, you may be able to replace your current plan with a new one better suited to releasing more funds. Speak to an equity release adviser to see if switching equity release plans would benefit you.
Start your equity release journey today
Our equity release specialists work with you and your family to explain the equity release plans available to you, offering whole-of-market advice so you get the best recommendation for your circumstances. Request a call back today.
IMPORTANT TO KNOW
At Bower Home Finance, we will understand your unique circumstances and advise you to ensure you are receiving the best plan to meet your objectives. There are plans that allow you to make voluntary repayments and move home, subject to lender criteria. However, early repayment charges may apply in certain circumstances.
Bower Home Finance provides independent, impartial whole of market equity release advice with an award-winning customer service experience. Initial advice is provided at no cost to you and without obligation. Only if you choose to proceed and your plan completes, would a typical advice and administration fee of £1,895 be payable.
Equity release requires paying off any existing mortgage. Any money released, plus accrued interest to be repaid upon death, or moving into long-term care. Equity release will reduce the value of your estate and your entitlement to means-tested benefits now or in the future, and impact long-term care funding. If you are considering equity release, we strongly recommend that you read our Equity Release page carefully and talk to one of our specialists before deciding if you wish to proceed.
To find out more about any of the products and the service we provide, please call us on freephone 0800 411 8668, request a call back, email us, or use our live chat on our website.
Please be aware that equity release may involve a home reversion plan or lifetime mortgage which is secured against your property. All features and risks are thoroughly explained in your free personalised illustration.