A drawdown lifetime mortgage is a loan set up for homeowners aged 55 and above. It is a retirement product with special features to make it an affordable option for the right homeowner. Under the main category of lifetime mortgages there are other options available. It is best to know the pros and cons of each to determine if the benefits are right for you with regards to one specific lifetime mortgage.
Drawdown is named for the type of equity release. Like most the name tends to say the main benefit and difference of this lifetime mortgage versus other products on the market. A homeowner takes out this loan with a smaller lump sum at the beginning. The provider then sets up a cash reserve facility for the homeowner to draw on as and when they need more funds.
As an example the initial lump sum may be £15,000 as a minimum requirement. In the cash reserve facility there may be another £20,000 the homeowner can draw on as needed. There are certain minimums associated with subsequent withdrawals, which can be anywhere from £1,000 to £5,000.
The initial lump sum has an interest rate attached. The interest will accrue based on an annual percentage rate (APR). This rate is typically fixed, but some companies have a variable rate. The rate is based on the Bank of England base rate and the mortgage point system that exists. The rate for subsequent withdrawals is also fixed based on the Bank of England base rate; however, it is the current rate not the original rate. Perhaps a homeowner withdraws funds six months after the initial sum and in that time the base rate changed twice – it would mean a different interest.
• As a lifetime mortgage repayment is not required until death or permanent relocation to a care facility.
• All capital sum including secondary withdrawals and interest is repaid by home sale and in keeping with Equity Release Council standards.
• Only the initial lump sum and any further withdrawals are charged interest. Funds in the cash reserve facility are considered unused and are not charged interest.
• The initial sum is smaller
• There are different interest rates
The disadvantages are really only cons if the drawdown lifetime mortgage is not for you. The reason many go with this type of loan is because they need a smaller lump sum for retirement with the possibility of accessing more. Most homeowners who take out this loan prefer having access to cash, but do not like having a huge sum collecting interest.
All lifetime mortgages including the drawdown option adhere to the Financial Conduct Authority and Equity Release Council standards. This means the loan is a Safe Home Income Plan as well as being fitted with a ‘no negative equity’ guarantee. The guarantee states no asset besides the home can be seized to repay the capital and all compounding interest. If the house depreciates and the sum owed is more than the home can be sold for, the debt has to be marked as paid.
Require further information?
Use the form below to request further information about this, or any other scheme, and an FCA regulated independent equity release adviser will be able to assist you over the phone, face-to-face, or via email.