Drawdown Lifetime Mortgages

Get Access to Money as & When You Need It
Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui
Have You Been Eyeing a New Car or Dreaming About a Tropical Island Holiday but Not Sure How You’ll Be Able to Afford Any of It? Here’s an Affordable Option Just for You – A Drawdown Lifetime Mortgage.
TABLE OF CONTENTS

Are You Feeling Unsure About Drawdown Equity Release?


You’ve been working your whole life, and you realise you still can’t afford to meet the demands of retirement? 

Don’t despair; we have some exciting news! 

Equity release mortgages unlocked over £4.8bn in 2021, with drawdown lifetime mortgages remaining the most popular way to access your cash. 

Our experts have compiled a comprehensive article with everything you need to know about a drawdown lifetime mortgage.  

Could this solve all your financial worries? 

In this article, you’ll find out:

  • What’s a drawdown lifetime mortgage?
  • How does a drawdown lifetime mortgage work?
  • What the advantages and disadvantages are? 
  • Whether it’s the right option for you?

EveryInvestor is committed to providing you with the most accurate, up-to-date information on everything to do with equity release. 

Our research team is on top of every new trend and relentlessly gathers information and data to ensure we’re only writing about the most current financial products. 

We’re here to make your financial decisions easier.

Let’s get right into it!

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What’s a Drawdown Lifetime Mortgage?

A drawdown lifetime mortgage gives you the flexibility and freedom to access your money in smaller installments, unlike a lump sum mortgage which gives you access to the whole amount as a once-off.  

One of the main differences is that interest only accrues on the money you take out and not on the total agreed loan. 

How Does a Drawdown Lifetime Mortgage Work?

A drawdown lifetime mortgage works by releasing an initial tax-free lump sum with further access to a cash facility from which you can withdraw your money as and when needed. 

This offers you a sense of security and gives you the flexibility to manage financial pressures as they come up. 

Lenders generally don’t charge any application or administration fees, and cash drawdown requests are usually processed in a matter of weeks. 

Interest will be added to the amount withdrawn at the rate applicable at the time.

Drawdown Lifetime Mortgage Interest Rates

Drawdown lifetime mortgage interest rates are set by each lender and are dependent on the plan you choose and the loan-to-value ratio1

Good news! 

Interest rates are becoming more competitive as more and more lenders join the market. 

Interest will only be charged on the amount of money that you withdraw from the drawdown mortgage and not on the amount that remains untouched. 

This means that your debt will grow more slowly over time than if you had borrowed the total amount as a lump sum. 

How’s Your Reserve Calculated?

Your drawdown lifetime mortgage reserve is calculated by taking into consideration the value of your property and, of course, your age. 

The older you are, the larger the percentage of the value of your property you’ll be able to borrow, and should you have certain health conditions, you may even be permitted to borrow more. 

When Do You Repay a Drawdown Lifetime Mortgage?

Drawdown lifetime mortgages will have to be repaid once the last surviving borrower dies or moves into permanent care and the house is sold. 

These days, however, many drawdown mortgage providers will allow you to pay the interest on your loan without incurring any penalty fees. 

By doing this, you’ll reduce the total cost of your overall mortgage. 

Ensure that your provider is a member of the Equity Release Council2, as this will automatically protect you under the no negative equity guarantee. 

This means that you (or your loved ones) will never have to pay back more than the value of your property. 

How Much Money Can You Have in Reserve?

You can have an unrestricted amount of money in your reserve if you’re on an uncapped plan; however, not all lenders offer this type of plan.  

Other plans may only allow you to keep a percentage of your total loan in reserve. This can range from 50% to 150% of the initial lump sum released.

How Do You Access Money Held in a Reserve Facility?

You can access the money held in your reserve facility by simply contacting your lender, who will then send you documentation outlining the amount they are offering you and their terms. 

If you’re satisfied and would like to proceed, you simply sign an acceptance form and return it to the lender. 

Your initial lump sum withdrawal will be the most involved, with subsequent reserve withdrawals being much more straightforward.

How Long Will It Take To Withdraw Your Funds?

Withdrawing your funds will take 2 to 3 weeks. Once you have returned the signed acceptance document to your lender, the agreed funds are paid straight into your account.

What Happens When You Want More Funds & Don’t Have Any Reserve Facility Remaining?

If you would like to access more funds, but don’t have any reserve facility remaining, you’ll have to speak to a qualified advisor and explore moving to an alternative plan. 

You may not be able to extend your existing facility, but borrowing additional funds – either with your current lender or with a new one – isn’t off the cards.

What Are the Advantages of Drawdown Lifetime Mortgages?

The advantages of drawdown lifetime mortgages are that interest doesn’t mount up as quickly, you have flexible access to your cash, and you maintain ownership of your home.  

Here’s some more information. 

Interest Doesn’t Mount Up as Quickly

Interest will only be added to the amount you release instead of the entire amount you borrow. 

Flexible Access to Tax-Free Cash

You can choose to make a withdrawal whenever you need to and spend it as you wish. 

Maintain Home Ownership

You retain ownership of your property and will ultimately benefit from any increase in the property value. 

Manage Means-Tested Benefits 

By withdrawing smaller amounts of money as and when needed, you avoid affecting your eligibility for state benefits. 

No Monthly Repayment

No repayments are required until your home is sold – either when you move into a permanent care facility or pass away.

No Negative Equity Guarantee

Lending money from a member of the Equity Release Council means you’re automatically covered by the no negative equity guarantee3

You’ll, therefore, never owe more than what your home is worth.

Moving House Is Still Possible

You can move to a new house and take your mortgage with you, provided you meet your lender’s criteria. 

This usually means moving to a home of equal or higher value or one of a lower value, but will be easy for the lender to sell. 

What Are the Disadvantages of Drawdown Lifetime Mortgages?

The disadvantages of drawdown lifetime mortgages are reducing the inheritance you leave behind, higher interest rates, and limits on withdrawal amounts.

Let’s look at these in more detail. 

Equity Release Can Reduce What You Leave as an Inheritance

Instead of leaving your home, or the value thereof, to your loved ones as an inheritance, they will be required to use it to pay off your drawdown lifetime mortgage. 

Interest Rates Can Be Slightly Higher

Interest rates on drawdown mortgages tend to be higher than those offered on lump sum mortgages. 

Different Interest Rates Can Apply to New Withdrawals

Interest rates on new withdrawals are dependent on market values at the time – this means they can often be higher than the original interest rates charged on your lump sum.

There Can Be Limits

Certain providers may restrict the number of withdrawals allowed in a year or the withdrawn amount. 

Means-Tested Benefits Could Still Be Affected

Although taking out smaller loans is less likely to affect your benefits; the amounts you withdraw could still affect them.

Early-Repayment Charges Can Be Hefty

If you want to make repayments before they are due (i.e., before you pass away or go into permanent care), you could be slapped with early repayment charges – and they aren’t cheap!

Further Amounts Aren’t Guaranteed

Should you wish to access more money than initially agreed upon, you’ll be required to apply for an additional loan.

How Much Does a Drawdown Lifetime Mortgage Cost?

Drawdown lifetime mortgages can cost between £1,500 and £3,000, plus compound interest.

You’re typically charged a fixed amount of interest every time you borrow money. 

Lenders don’t usually charge for administrative costs involved with withdrawals. 

Drawdown Lifetime Mortgages & Means-Tested Benefits

Drawdown lifetime mortgages may affect your eligibility for means-tested benefits. 

Did you know that the Department of Work & Pensions4 (DWP) and local authorities impose limits on bank savings as they can affect your eligibility for means-tested benefits?

It’s because of this that drawdown lifetime mortgages are so popular. 

By releasing smaller amounts of money as and when needed, you’re more likely to stay inside the guidelines set out by the DWP, keeping your means-tested benefits intact. 

Which Lenders Offer Drawdown Lifetime Mortgages?

Lenders that offer drawdown lifetime mortgages include Aviva, Hodge Lifetime, More 2 Life and Legal & General, to name a few. 

All lifetime mortgage providers offer drawdown lifetime mortgages, with a variation in how they are structured. 

The commonality is that you’ll only pay interest on the money released and not on the funds held in your reserve. 

Here’s a list of mortgage lenders that offer a drawdown mortgage option. 

  • Aviva
  • Hodge Lifetime
  • More 2 Life
  • Legal & General
  • LV
  • Just
  • Canada Life
  • Retirement Bridge
  • Nationwide
  • Responsible Lending
  • Onefamily
  • Retirement Plus
  • Pure Retirement
 PlanRateType
HODGEThe flexible lifetime mortgage (fee-free)4.12%Fixed
Canada LifePrestige Options Flexi5.37%Fixed
HODGEFlexible lifetime mortgage3.98%Fixed

Common Questions

Do Drawdown Plans Cost More Money Than Lump Sum Plans?

What’s a Drawdown Equity Release?

How Common Are Drawdown Equity Release Schemes?

Is Tax Payable on Drawdown Lifetime Mortgages?

Can I Move House With a Drawdown Lifetime Mortgage?

Is Drawdown Equity Release a Bad Idea?

Why Choose a Drawdown Lifetime Mortgage?

What’s a Drawdown Facility?

Conclusion

If you need to supplement your retirement and are looking for a financial safety net for those extra expenses you never budgeted for, a drawdown lifetime mortgage may be the perfect solution.

It’s less likely to affect your means-tested benefits and could save you money on interest accrued.

Whether or not a drawdown lifetime mortgage is a right fit for you will depend entirely on your unique financial circumstances. 

That’s why you should only make a decision following an assessment and consultation with a qualified financial adviser.

How Much Can You Release?

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Value of Your Home?

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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.