There are a number of variations of lifetime mortgage schemes, of which drawdown schemes have quickly become the most popular. These products are some of the most flexible available in the equity release marketplace and allow homeowners to save some control over the equity being withdrawn from their homes.
If you are in the market for a lifetime mortgage that allows you a level of control over the frequency and amount of equity withdrawn from your property, a drawdown lifetime mortgage may be the best product for you. A drawdown lifetime mortgage is essentially a standard lifetime mortgage but allows for a drawdown facility. These products were built out of the old lifetime mortgage but with more flexibility. This is because with the old products, homeowners were forced to predict how much money they would owe over a designated period of time which made retirement planning more challenging. Homeowners would often use a portion of their lump sum equity release right away and then put the rest in a savings account which was not always the best move, as they were paying interest on the full amount borrowed. Now, with a drawdown product, it is possible to release some equity upfront and then drawdown the surplus as needed. The cash left with the lender does not accrue interest.
In order to be eligible for this product, you must be over the age of 55 and own your own property. The amount available in your cash reserve facility will be calculated by the lender based on the youngest homeowner’s age and the value of your property. Once the drawdown facility amount is determined, you can choose how much you want to withdraw right away. Any money remaining after that withdrawal is held by your lender in a reserve facility that you can drawdown from in the future, if needed. If you do need to drawdown from the reserve facility, you simply make a drawdown request to your lender, which can typically be made in increments of as little as £2,000. And it typically only takes a couple of weeks to receive the funds, with no admin or application fees imposed.
Similar to every other retirement product, there are advantages and disadvantages to drawdown lifetime mortgages. Advantages include the obvious flexibility it allows, the fact that you keep 100% ownership of your home along with any increase in its future valuation, and the easy access to additional funds. Disadvantages include that drawdowns can have a higher interest rate than the initial lump sum and you may have restrictions on the size of the initial loan amount.