Drawdown lifetime mortgages
Drawdown is a type of lifetime mortgage that enables you to take the cash from your home in chunks, as and when you need it.
A drawdown lifetime mortgage allows you more freedom to release your money when you like. Your lender agrees to an overall sum of money you can borrow, which is set aside for you.
You can take an initial lump sum and then withdraw smaller amounts when you need it (subject to minimum amounts).
As you only pay interest on the money you have drawn down, you can save a considerable amount in interest over the lifetime of the plan.
How does it work?
In addition to the features and considerations of a lifetime mortgage, the details of a drawdown lifetime mortgage are as follows
- You can reduce the cost of equity release by only taking as much money from your home as you need at any one time
- Your beneficiaries could end up with a greater inheritance, compared to if a lump sum plan is taken out
- These plans are more flexible than lump sum plans, meaning you can adapt to your changing needs in retirement
- These plans can help you to organise your finances so that you don’t miss out on means-tested benefits
- You can use the money you release for any purpose and can cover specific expenses, including home improvements or to pay university fees
Things to consider
- There is a minimum limit on the size of the lump sum you can take initially
- Some providers may not guarantee the reserve facility that you can draw down from and it could be withdrawn at a later date
- Future withdrawals can be at a higher interest rate than the initial lump sum
- You don’t know how much of your property value will be left to your beneficiaries, but you may be able to guarantee a percentage of the value as inheritance
- The loan provider has a first legal charge against your property – when the property is sold, the loan and interest will be paid to the provider and the surplus goes to your estate
- Early repayment charges may apply if you decide to repay the loan
- A Drawdown Lifetime Mortgage will reduce the value of your estate and may affect your entitlement to state benefits
Comparison between a lump sum lifetime mortgage and a drawdown option
Comparison between a standard lifetime mortgage and a drawdown option of £64,000 released over 15 years with an interest rate of 6.1%.
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If you are considering equity release we recommend that you read is it right for you? carefully.