When considering equity release, it’s important to look at your options including a drawdown lifetime mortgage and understand the advantages, disadvantages, and eligibility criteria.
Offering whole of market advice, our specialist equity release advisers will work closely with you and your family to answer any questions you might have whilst helping you find your best option of equity release to match your circumstances.
What is a drawdown lifetime mortgage?
A drawdown lifetime mortgage is a more flexible option of acquiring tax-free cash though equity release. It allows you to receive an initial lump sum with access to release further funds as and when you need it in the future.
With a drawdown lifetime mortgage, you will not be charged interest on the funds in the cash reserve facility until you borrow the money. As you will only be charged interest for the money that has been released, drawdown lifetime mortgages are often popular with those looking to make gradual withdraws of money such as for home improvements or would like irregular funds to maintain their lifestyle.
A lifetime mortgage is secured against your home and will be repaid once you move into long term care or pass away.
How does it work?
When it comes to a drawdown lifetime mortgage, you will work with an equity release adviser to find out how much equity you could release from your property and if you qualify. The equity release specialist will work closely with you to help find a product and arrangement that is best suited to your circumstances with the lowest plan costs.
Once you have completed the necessary paperwork, you will receive an initial lump sum with the rest of the equity that has been released stored in a cash reserve facility. This means the rest of the equity that you have requested will be waiting for when you are ready to release further funds in smaller or an amount within your facility. You will only accrue interest on the cash you release, which will be paid off when your home is sold after you move into long term care or pass away.
What are the advantages and disadvantages of a drawdown lifetime mortgage?
The advantages:
When looking to release equity through a drawdown lifetime mortgage it is important to understand the advantages and disadvantages. The advantages include:
- Less interest to pay as you will only pay interest on the money you have released.
- More flexibility as to when you access and drawdown the money than a lump sum lifetime mortgage.
- You will maintain ownership of your home until you move into long term care or pass away.
- No negative equity guarantee means your family will not be left in debt once your house is sold. You or your family will never repay more than the value of your home.
- Fixed rate of interest so that you know the costs involved prior to releasing any money.
The disadvantages:
It is important to speak to an equity release specialist to understand how releasing equity might affect your circumstances. Some of the disadvantages include:
- Sometimes you may find drawdown lifetime mortgages have higher interest rates than lump sum lifetime mortgages.
- Your eligibility for means tested benefits may be affected.
- Taking equity release and more money will reduce the value of your estate and money available for long term care.
- You may be limited on how many times you can release money each year.
- If you wish to release more than the agreed amount, you may need to submit another application which could be denied.
Am I eligible for a drawdown lifetime mortgage?
Like other equity release products, a drawdown lifetime mortgage has an eligibility criterion that will determine if you are able to release equity and to what extent. If you are aged 55+ and own your own home in the United Kingdom worth £70,000 or more, you may be eligible to release equity with a drawdown lifetime mortgage.
Try our free equity release calculator today to see how much equity you could release from your home.
Lump sum vs drawdown
There are two types of lifetime mortgage, lump sum and drawdown. A lump sum lifetime mortgage offers you a single lump sum, in comparison, a drawdown will provide you with a lump sum to start off and will leave funds stored away for you to release in smaller amounts at a later date.
If you are looking to make a one-off purchase or can maintain the lifestyle you have on your current income, a lump sum lifetime mortgage might be beneficial to you.
If you are looking to complete a larger renovation, make regular purchases or are simply looking to improve your lifestyle with regular payments, a drawdown lifetime mortgage might suit your needs.
There is no one size fits all when it comes to equity release, which is why we take into consideration your circumstances and what you are looking to use the funds. Before you take out a plan you must take advice from a qualified adviser such as the ones at Bower.
Can I pay back my drawdown lifetime mortgage?
Lifetime mortgages are designed to be repaid once you pass away or move into long term care through the sale of your home. If you choose to make payments towards the lifetime mortgage you may be charged an early repayment fee, however this will vary from product to product and some products allow you to overpay a percentage of the balance each year with no charges.
How do I release money from my drawdown reserve?
Releasing money from your reserve facility is straight forward. You’ll need to contact your lender who will send you an offer letter stating the amount they are offering with any terms that might follow the withdrawal. All you’ll need to do is read the offer letter carefully and sign the acceptance form if you agree to the terms. This is typically quicker than the initial borrowing when you first release equity from your home as you won’t usually require further input or costs from financial advice or solicitor advice.
What happens if I’ve exhausted my drawdown reserve?
If you have exhausted your drawdown lifetime mortgage reserve, you may still have some options. Your existing lender may be able to provide you with a further advance if you are looking for addition funds. Alternatively, you may have the option to replace your lifetime mortgage with a new one. Speak to an equity release adviser to learn more about your options.
Start your equity release journey today
Our equity release specialist will work with you and your family to help you understand the equity release plans available to you whilst offering whole of market advice, so you can get the best recommendation for your circumstances. Request a callback today.
At Bower, 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.
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.
Bower Home Finance provides independent, impartial whole of market 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 £1,695 be payable.
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 join our live chat you’ll find 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.
