A drawdown lifetime mortgage allows you to pay interest only on money that you draw down – rather than one lump sum.
In most cases, you are unlikely to use all the money you receive in one lump sum right away, so instead of being kept in the bank and earning less interest than the equity release provider is charging, it is kept in a cash reserve facility and it is ready for you when you would like to withdraw it.
For many homeowners over 55, the drawdown lifetime mortgage is a very flexible option that allows you to save money and you can choose to repay each month (usually around 3% to 5% APR) or have it added to the final bill for when you die or go into long-term care.
The popularity of lifetime mortgages means that you can release money from your property (around 35% to 50%) and still stay in your home for the rest of your life. This type of equity release scheme can provide some much needed funds to supplement your income or pension, do home improvements or give money to your loved ones.
Homeowners must be over the age of 55 to be eligible. The lender will calculate how much you can release from your home starting with information such as your property’s value, your state of health and age of the youngest homeowner, since this is likely to be the last person living in the property.
Your loan-to-value will be calculated, with the older your age, the more you can typically borrow (since it is closer to the provider being able to claim their stake).
Once approved, you can decide how much money you would like to withdraw. There are usually minimum limits so that you are not just taking out £5 here and £10 there, and funds are usually available in just a matter of weeks.
The money is kept in a cash reserve, so it is available whenever you would like to withdraw more funds – and lenders do not charge any admin fees for each withdraw.
If you are claiming means tested benefits, you can arrange to release an amount through a lifetime mortgage that will not affect this. It is possible to drawdown a certain income that will be in line with the Department of Work and Pensions (DWP) and therefore allow you to continue claiming the same amount as before.
By using a drawdown lifetime mortgage, it does not affect your children’s inheritance. You still retain 100% ownership in your property and this is sold when you pass away or go into long-term care, the mortgage provider will take their stake and any remaining monies are passed onto your estate.
If you are concerned and wish to protect your children’s inheritance further, you can opt for making ad-hoc payments to lower the overall costs or setting up a minimum level of inheritance that they will receive. Please mention this to the advisor that you speak to.
To ensure you get the most out of this product, it is important to check the terms and conditions. For example, some lifetime mortgage providers may only let you access your drawdown facility a certain number of times per year. In addition, there may be a limit of the amount you can drawdown each time, depending on the size of your initial loan.
Finally, the interest rate you are charged may be slightly higher than if you were to apply for a lump sum mortgage, because you are being charged for the flexibility and easy access of a drawdown lifetime mortgage.
At Equity Release Online, our team of advisors are able to assist you and provide you with a range of different options, based on the whole of market deals that we have available. Start by filling in some basic details about you and your property and we will present you with a list of options on the screen. To proceed further, you can speak to one of our advisors who will be able to assist you every step of the way.