Are You Feeling Unsure About Drawdown Equity Release?

Drawdown is known as the most popular of the lifetime mortgages on the market. Drawdown equity release schemes offer flexible and easy control of your funds.

Drawdown Equity Release

Drawdown is known as the most popular of the lifetime mortgages on the market. Drawdown equity release schemes offer flexible and easy control of your funds.

There’s so much to learn about lifetime mortgages, a type of equity release. And especially when it comes to drawdown.

But first, what’ equity release again?

Equity Release Defined

Equity release refers to the action of unlocking the wealth tied up in your home. You’ll take out a long-term property-based loan (also called a later life loan) that’ll be repaid in full once you pass away or move into a long-term care facility.

1. Lifetime Mortgage

The first type of equity release is a lifetime mortgage. This type lets you take out a mortgage on your home if it’s your primary residence. However, you will remain the owner. You’ll have the option to ringfence part of your property for your family to inherit. You can also make repayments or let the interest increase. Better yet, if there’s any loan amount or any accrued interest, it’ll be paid back when you pass away or need long-term medical care.

2. Home Reversion

The second type is a home reversion, which means you sell some of your property or your whole property. You can sell it to someone like a home reversion provider, and they’ll pay you a lump sum for it, but they can also pay you in regular payments. It’s your choice.

Now:

One has to be careful and watchful. Many devious providers and websites out there offer incomplete and sometimes inaccurate information about equity release. But, we’re here to tell you everything you need to know so you don’t have to worry about a thing!

Who Can You Trust?

We’ve done all the dirty work for you. Luckily, the hundreds of hours of researching and consulting of experts have been done for you. We spoke to about ten equity release experts and had multiple consultations.

Simply put…

Our lifetime mortgage guide will give you the inside scoop of equity release, and it’ll help you make an informed choice. And in turn, you’ll most likely boost your retirement and financial freedom.

Let me tell you something…

When it comes to lifetime mortgage plans, they offer tax-free cash release for you to enjoy while you’re retired. At the same time, lifetime mortgage plans also allow you to live in your property after you’ve taken out the plan – meaning you maintain ownership of your property until the plan ends and your provider sells your property.

If drawdown equity release can’t help you in the way you need it to, there are eight other alternative options for you to choose from.

Some of the alternative options are:

  1. Enhanced Lifetime Mortgages
  2. Lump-Sum Lifetime Mortgages
  3. Interest-Only Lifetime Mortgages
  4. Income Lifetime Mortgages
  5. Voluntary Repayment Lifetime Mortgages
  6. Buy to Let (BTL) Lifetime Mortgages
  7. Retirement Mortgages
  8. Retirement Interest-Only Mortgages

But, let’s look at drawdown equity release lifetime mortgages in particular.

What’s A Drawdown Lifetime Mortgage?

We’ve mentioned before; when it comes to lifetime mortgage plans, they offer tax-free cash release to enjoy while you’re retired. At the same time, lifetime mortgage plans also allow you to live in your property after you’ve taken out the plan – meaning you maintain ownership of your property until the plan ends and your provider sells your property.

Best of all:

You have a choice to release all the cash at once as a lump sum or to release small amounts of the money whenever you need it. The smaller release of funds is known as ‘drawdown’.

How are you affected?

If you already have a mortgage you need to repay on your property, the money you release will pay off that mortgage first before you can access more equity. After that, it’s your choice what you do with the rest of the equity that you’ve released.

Simply put…

You can use that cash for anything you want to: buying your dream car, going on that long-awaited overseas trip, doing home renovations, or helping your kids to pay for investment – you have absolute freedom to do as you wish with your mortgage money.

Let me tell you something:

Lifetime mortgage plans give you a variety of choices, making your life so much easier. This is unlike other types of equity release plans. You can now choose from this wide range of options for the perfect one.

How Do Drawdown Lifetime Mortgages Work?

Drawdown lifetime mortgage plans are the most popular type because they offer a flexible money reserve facility. When you choose this mortgage, you have easy access to your money.

Now:

The drawdown mortgages were first designed as a response to the old plans. The old methods required homeowners to estimate how much they’ll need to release. So, the money was invariably put into a bank account and could earn less interest than the interest being accrued on the equity release scheme.

What does this mean for you?

Taking out a smaller lump sum will be charged less interest and will mean a lower balance for you to settle. Therefore, you’ll be able to get more equity from your property in the future when and if you need to.

Better yet:

With this type of mortgage, you don’t the need to repay any new equity release cash in the bank. You can simply pay that to your provider. In return, your provider won’t charge interest on any money you pay them, only when you withdraw funds.

Drawdown Lifetime Pros

  1. You can borrow the exact amount you need with lower interest costs if you compare it to borrowing a big lump sum
  2. Available any time you need it, and you don’t have to reapply
  3. No monthly repayments
  4. No affordability or income tests

Drawdown Lifetime Cons

  1. Your home’s equity will decrease and the inheritance value as well
  2. Higher interest rates compared to other mortgage plans
  3. The interest rate may differ on future withdrawals compared to earlier withdrawals and your original lump sum

A Short Summary Of How Drawdown Works

  • Firstly, your provider will agree to a total loan amount, depending on your age, health conditions, and property value.
  • Secondly, after receiving a lump sum, the rest of the money will go into reserve for your drawdown.
  • So, when you’ve taken out the first amount, you’ll then be able to withdraw smaller amounts of money as and whenever you need them. However, a minimum applies, but there aren’t set-up fees to worry about.
  • Your provider will charge interest on your withdrawals, and not on the total loan amount.
  • There aren’t monthly repayments you need to worry about. Just repay the loan when your provider sells the property.

Here are some plans for your perusal:

 PlanRateType
HODGEThe flexible lifetime mortgage (fee-free)4.12%Fixed
Canada LifePrestige Options Flexi5.37%Fixed
HODGEFlexible lifetime mortgage3.98%Fixed

Now, let’s dive into means-tested benefits.

Drawdown Equity Release & Means-Tested Benefits

One of the most common reasons people take out a drawdown lifetime mortgage is that it’s less likely to affect their means-tested benefits.

The Department of Work and Pensions (DWP1) and local authorities impose bank savings limits. So, your balances mustn’t go over that limit. This will affect your eligibility for some means-tested benefits.

Let me tell you something…

By taking out a drawdown lifetime mortgage2, it’s possible to tailor the expected initial loan amount so that it can be spent with any current bank balance you may have. If you keep this amount within the DWP rules and limits, you can actually avoid losing your means-tested benefits when you release your equity.

Simply put…

Before you jump right in, speak to a specialist drawdown lifetime mortgage adviser for a thorough evaluation of your financial and lifestyle circumstances.

5 Drawdown Lifetime Mortgages Advantages

  1. Drawdown plans are very flexible, especially when it comes to when and how much you can be withdrawn.
  2. Interest is only charged on the total withdrawn amount, and not on money that’s left in reserve with your provider.
  3. You can now also choose a higher maximum cash drawdown plan with the enhanced lifetime mortgage options.
  4. You retain 100% of your property’s value plus any increase if it should grow in the future.
  5. You can access the money quickly and easily, and you won’t be charged extra admin fees.

4 Disadvantages Of Drawdown Lifetime Mortgages

  1. Some lifetime mortgage providers can withdraw access to your drawdown plan.
  2. Interest rates on drawdowns will be at the rate at the time of application, but it can surpass the original lump sum withdrawal.
  3. Some providers have a drawdown size limit of the drawdown facility depending on your loan size.
  4. If you end up spending your whole reserve, you’ll have to ask for further advice and apply again.

How Much Money Can I Borrow?

Your loan amount depends on these factors:

  • Your property portfolio. A surveyor will come to your house for a professional valuation.
  • Your age, health history, and condition.

Best of all…

You’ll be able to release 20%-50% of the equity (or value) in your property. However, the exact loan size will differ from one person to the next. Everyone has different circumstances affecting their loans.

That said:

When you take out a drawdown lifetime mortgage, it might be one of your best commitment yet! Why? It has very few chances to affect your means-tested benefits. It’s super easy to find out how much tax-free cash you can release with an online equity release calculator!

Now:

Even though this type of lifetime mortgage comes with multiple unique features, it’s still important to consider all the alternatives and options available to you. Speak to a specialist and get advice from your financial adviser. It’d be best to involve your family as well to make sure you make the best choice.

If you’re still asking yourself…

Is a Drawdown Lifetime Mortgage a Good Idea?

Drawdown plans differ from other plans, and that’s why they’ve become so famous. They have some fantastic pros which may make them a marvellous choice for your future.

These pros are that:

  • The interest doesn’t compound or add up so quickly – interest requires repayment on the withdraw amount only, not the total sum of your loan.
  • You’ll get flexible access to tax-free cash – withdrawals can be made at any time.
  • You can still live in your house – that way you’ll benefit from future property value increase.
  • You can manage your means-tested benefits – that way you avoid affecting your state merits by withdrawing smaller amounts.
  • Monthly repayments aren’t an obligation or a requirement – repayment only happens once your property gets sold by your provider when you pass away or need long-term care.
  • There’s a no negative equity guarantee – which protects you and allows you to keep your family debt-free and stress-free.
  • You can move to a new house– just confirm that your provider approves the new home.
  • You can get an increased maximum cash drawdown plan thanks to the enhanced lifetime mortgage options.

Common Questions

What Is Drawdown?
How Does A Drawdown Equity Release Mortgage Work?
Is Drawdown A Good Idea?
Do I Qualify For A Drawdown Plan?

In Conclusion

Drawdown lifetime mortgages are such a great and flexible way to loan money! After reading this article, you’ll hopefully be well informed to make the right decision for you and your future.

For any further concerns or questions, please feel free to contact us!

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How Much Can You Release?

Most people are using Equity Release as a means of retaining the use of their house while also obtaining a lump sum or a steady stream of income. Get matched with an expert and check your eligibility for equity release options.
Use our free equity release calculator & see how much you can release today.

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