Drawdown Lifetime Mortgage Plans In Practice

Occasionally, there is the need to access the entire amount received upon mortgaging a property. Under the older generation equity release schemes you could mortgage a property only for a single lump sum, even if that was not your actual need. This money had to be accounted for to last over a 3-5 year period which wasn’t always the ideal scenario. Now you have a different option in drawdown lifetime mortgage.

Interest rates in the early days were as high as 8% and calculated on the total amount received by mortgaging the property. The drawdown lifetime mortgage plan was conceived to help with this dilemma and is now one of the most customer friendly and modern forms of equity release scheme. The drawdown lifetime plan is where you can draw down the cash facility in stages from your mortgage account. Under this plan, you use your main residence as security for a lump sum amount.

Unlike the old and traditional equity release schemes, here you draw only a part of the lump sum amount that was mortgaged initially. The remaining amount stays with the lender, ready for use in the future if required. At later stages, with a drawdown lifetime mortgage you can decide to draw down the remaining amount as cash from the lender in several stages based on your requirement.

The minimum amount that can be withdrawn initially is £10,000 with Just Retirement. The advantage of these drawdown lifetime schemes is that the interest is calculated for the amount drawn down, with nothing charged on the cash reserve not taken. The best part is that there is not much paper work involved for drawing the remaining cash and usually NO further charges by the lender.

With a drawdown lifetime mortgage plan the amount left with the lender can be used for inheritance too. Hence, the drawdown mortgage plan does not benefit just the plan holder, but it serves the future generations too. You can even request for monthly incomes from the lender by drawing a fixed amount once a month. Here too, the interest will be calculated for the cash drawn at any particular instance. This interest rate accumulated will definitely be cheaper than the standard interest rate from a regular lifetime mortgage plan.

Another advantage of these schemes is the fact you retain ownership of the property mortgaged under the drawdown lifetime mortgage plan. As long as you pay off the lifetime mortgage you can keep the property as an inheritance for your family. It will depend on your financial situation, what the money was withdrawn for, and if the interest rate is affordable. There are issues with repaying the mortgage early. There can be a charge or penalty for paying the mortgage off early.

You may also want to consider life insurance plans that cover outstanding mortgages, if you wish to keep your home for your family’s inheritance. To examine the benefits and disadvantages of this plan an outline is below:

Advantages of Drawdown
1. You take only what you need
2. You can take out this mortgage with some providers at age 55
3. You do not pay a monthly mortgage payment
4. You retain ownership of your home
5. You get funds when you need them
6. You can pay off other debts or use the tax-free cash as you wish
7. You have a chance to extend the mortgage if your equity value increases
8. You pay the mortgage at your death or when you move to a long term care facility
9. You only pay interest on the money you take out of the account, not the full amount available to you

Disadvantages
1. Interest will accrue on the money taken out
2. You may have to sell your home to pay off the mortgage
3. You may be unable to leave an inheritance behind
4. An early repayment penalty fee
5. You can only take a percentage of the equity in your home, not 100% of the house value or any of the house value that may be tied to another mortgage or loan

There are definite advantages to drawdown lifetime mortgage plans. They are better than regular mortgages since you take only what you use rather than more than you need. In case you like to repay the mortgage loan early, remember there could still be early repayment charges. It is always best advised to seek the advice of an independent financial adviser to understand the features and risks involved with such equity release mortgage plans.