The Drawdown Lifetime Mortgage Equity Release Plan
Now the most popular method of releasing equity from your property. The strength of drawdown lifetime mortgages lie in their flexibility, as they allow you to control when, and how much equity to release from your home.
Still following the standard equity release format, drawdown lifetime mortgages work by taking tax-free cash from your property, upon which the lender charges interest on each year. This compounding of interest is added to the loan until the last person has died or moved into long-term care. At that point the house is sold by the executors, with the equity release mortgage being repaid from the sale proceeds, and the balance passing onto the beneficiaries.
Drawdown Lifetime Mortgage In Practice
Rather than a traditional equity release scheme which only releases a one-off lump sum, the drawdown lifetime mortgage allows you to take the tax-free cash in stages to suit your spending patterns.
In essence, the lifetime mortgage UK provider will initially provide you with a drawdown facility based on the age of the applicants. For example, a male age 65, with a property value of £200,000 would be eligible for an overall drawdown facility with Just Retirement of £53,000. (These figures do vary from lender to lender so always check first).
The next decision is how to withdraw the money from the drawdown facility and this will depend on your immediate spending plans. For example, you may wish to pay off some debts, home improvements & a holiday totalling £20,000. Therefore. in this scenario with Just Retirement, you could then withdraw this initial tranche of £20,000 leaving the remaining £33,000 in the cash reserve facility for a later date. The advantage being that the lender only charges interest on the amount you have actually withdrawn, NOT on the whole £53,000.
Once there is a further need for additional funds, you can merely contact your lifetime mortgage UK provider & submit a drawdown request form stating how much of the remaining £33,000 you wish to withdraw. With Just Retirement, this could be in as smaller amounts as £2,000 a time & with no further admin fees involved. The withdrawals can be made as often, infrequent or even none at all, thus providing you with complete flexibility.
This process can continue until all funds are exhausted from the lifetime mortgage cash reserve fund. At that point the plan would just roll-up for the remainder of the term.
Lifetime Drawdown – Extra Borrowing
Even when all the drawdown funds have been exhausted, you may still have further options if additional tax-free cash is required. Again, this will depend on the individual lenders criteria, how long it has been since you started the plan and your age & property value at that time. Using an equity release calculator or your original adviser can assist here.
The reason for possibly borrowing even more funds is that as you get older the percentage of your property value you can release increases. Additionally, your property value may also have gone up, and the combination of these two factors may result in a loan-to-value that will achieve a lending amount over & above your current lifetime mortgage balance. This ‘extra’ amount can usually then create a new drawdown facility, depending on its size.
So even when you think all your reserve funds have been utilised, help may still be on hand if additional cash is required.
Pros and Cons of Drawdown Lifetime Mortgages
The advantages and disadvantages of drawdown equity release schemes can be explained here.
Drawdown Lifetime Mortgage Pros
>> Age criteria – plans start from age 55 onwards, with some starting at age 60. Check for eligibility on 0800 321 3156.
>> No monthly payments – As no regular servicing costs are required, the equity release drawdown plan does not affect your monthly budget.
>> 100% Ownership – as the drawdown plan is a lifetime mortgage, you keep the property 100% in your own name, thus benefitting wholly from any property price increases in the future
>> Means tested benefits – to help mitigate loss of means tested benefits, drawdown enables you to control how much is in your bank account at any one time.
>> Cash Reserve – the creation of the drawdown facility allows you to take ad-hoc withdrawals at will to suit your personal spending habits
>> Less Interest – interest is only charged on the cash withdrawn, this will result in a lower future balance than would otherwise have been if the whole amount had been taken as a single lump sum
>> Efficiency – additional drawdowns taken are usually in your bank account within 14 days
>> Regulation – drawdown lifetime mortgage plans in the UK are regulated by the Financial Conduct Authority (FCA)
Drawdown Lifetime Mortgage Cons
>> Compounded interest – the principal sum borrowed will still have a rolled-up interest element which grows over time
>> No guarantee – some drawdown mortgage providers cannot guarantee the future use of the cash reserve facility
>> Reserve restrictions – some lenders may restrict the size of the reserve facility based on the initial amount of tax-free cash taken
>> Early repayment charges – each tranche of money taken could attract a new rate of interest and have different early repayment starting points
>> Reduced Inheritance – a drawdown release of equity will reduce your beneficiaries entitlement to their inheritance
>> Reserve Usage – once the cash reserve facility has been exhausted, you will need to re-apply for a further advance which may not be accepted due to the amount of equity already withdrawn
>> Maximum equity release – you cannot usually borrow as much on a drawdown lifetime mortgage than on home reversion, or lump sum equity release schemes
As you can see the drawdown equity release mortgage offers much flexibility and provides you with a greater degree of control over your finances.
Equity Release 2go>> provide the following additional services in relation to drawdown plans: –
Alternatively, you can contact an Equity Release 2go>> drawdown specialist by ringing Freephone 0800 321 3156 anytime between the hours of 9am – 9pm.
These schemes are UK lifetime mortgages. To understand the features and risks ask for a personalised illustration.