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drawdown lifetime mortgage

This article was last updated on 1 October 2020.  

Drawdown Lifetime Mortgage & Drawdown Equity Release in 2020

We know how confusing it can be when you are looking at the different types of equity release products. While they can be a form of income support, or way of funding long term care, there are risks to consider, too. 

Topics that you will find covered on this page

In a worst case scenario, making a wrong or bad decision can cost you tens of thousands of pounds, which is why we want to make sure you fully understand everything you need to know.  Therefore, in the guide we will clearly:

  • Explain what a drawdown lifetime mortgage is
  • Give the strengths and drawbacks of a lifetime draw down mortgage.
  • Tell you where you can find a drawdown equity release mortgage calculator.

As care becomes a more common requirement for older people and their families, funding options for one’s health continues to cause confusion and concern.

Often it can feel difficult to know how to fund the care required – and find enough money to cover the costs.

The good news is that the number of financial options available to those considering care continues to grow.  These include the use of a drawdown lifetime mortgage, which is a type of equity release plan. Equity release may be a good way to release money and generate a cash lump sum. 

Before we start here is a short video to explain how equity release works.

Now, here is a short video explaining how a drawdown mortgage works.

You can read more here about how an equity release scheme works

Fortunately, help is on hand to enable you to navigate the financial playing field and choose the best possible option for you or your relative.

With so many options on the table, the financial decision-making aspect of sourcing care can often appear daunting.

Which plan should you choose? How do you know which choices will offer the best benefits for you both now and in the future? At UK Care Guide, we focus on simplifying the process, covering each option, in turn, to help you to make an informed and confident decision.

In this article, we focus on the drawdown mortgage – a flexible plan reasonably new on the market that is increasing in popularity amongst over sixties requiring care or needing to release funds for home improvement or retirement. With this plan, you remain the homeowner, regardless of the size of your loan.

A drawdown lifetime mortgage has many advantages attached – but it might not be right for you. This article will help you determine whether it is the best option for you.   

What is a drawdown mortgage?

A drawdown mortgage is a type of equity release scheme, offering greater flexibility and freedom compared with traditional plans.

The lending company agrees to allow you to borrow a set sum of money, which is set aside for you as a cash reserve facility. You then have the option to take an initial lump sum payment, with the opportunity to withdraw smaller amounts as and when required.

This often represents a more cost-effective approach than a lump sum lifetime mortgage, as you only take as much money as you need out of your property. While you must still pay interest, over the duration of the plan you can expect to pay less compound interest on the same amount of money obtained from a drawdown of mortgage than with a traditional scheme.

This type of equity release appears to be popular as it occupies a niche in the market, addressing many of the issues previously experienced with traditional schemes.

Drawdown lifetime mortgage plans have many advantages – which is why they are experiencing increased popularity. But the suitability of this type of equity release scheme will depend on your specific requirements and personal situation – along with how much tax free cash you need to borrow.

For this reason, it’s key to consider your short-term and long-term requirements to try and plan for the future accurately and adequately.

The rigidity and high costs involved put people off – but these problems could now be a thing of the past thanks to a significant increase in drawdown mortgage providers on the market.

Try out our equity release drawdown calculator – see how much money you could release

drawdown equity release

Where can I find a drawdown equity release calculator?

That’s simple. You can read more about how the drawdown mortgage calculator works here and use the calculator on the page. Or you can try the calculator below. The amount of tax free cash you could borrow depends on several factors, including your age and the market value of your home.

 

It is important to consider not just the amount of cash you can borrow, but also the interest rate of the plan, administration costs,  and the effect the plan might have on any means tested benefits you receive. 

This video explains what the advantages and disadvantages of drawdown lifetime mortgages are.

Advantages of a drawdown lifetime mortgage include:

  • A significant reduction in the cost of equity release, as you only take as much money as you need from your property.
  • Flexibility and freedom – your lifetime mortgage works for you, not the other way around. You’re in control and can adapt depending on your circumstances as your needs change over the duration of the plan. You take out as much as you want, when you want, with fewer restrictions imposed.
  • Reduced impact on inheritance tax – so you’re free to leave a larger amount to family and friends in your will.
  • Accessing this type of equity release scheme may not affect your state benefits in the same way as traditional plans do. As you’re in full control, you can organise your finances so that you won’t miss out on means-tested benefits. 
  • The money you release can be used for any purpose you choose. You may like to use it for care set it aside for funeral costs or make home improvements.
  • You will not have to pay interest on the unused cash facility. 
  • You will retain full home ownership, unlike with a home reversion plan, when the lenders technically own part of your home. 

Where can I speak to an equity release specialist? 

To help our site users, you can have a free consultation with an equity release specialist to help you better understand how it works, the eligibility criteria,  and what your options might be.

To do so, you can book an appointment directly using the calendar below.  Just pick your preferred time and date, and someone will call you to help.

Drawbacks of drawdown lifetime mortgages can include:

  • Some providers don’t provide a guarantee on your reserve funds, meaning they could be withdrawn at a later date.
  • Your loan provider has a primary legal charge on your property once an agreement is made. Upon the sale of your property, they will be repaid first (loan and interest due) – the rest will go to your estate.
  • There are usually minimum limits set on the initial lump sum you can take, and subsequent payments after that can vary depending on the provider, so it’s important to shop around, to find the deal that works in your best interest.
  • Withdrawals may be subject to a higher interest rate than the initial lump sum – something worth considering when you’re deciding how much to withdraw and when.
  • Although a drawdown lifetime mortgage is usually more beneficial from a welfare perspective, it will still affect the value of your estate and may affect your entitlement to means tested benefits.
  • If you decide to repay the loan early, you may be subjected to early repayment charges.

Book an appointment to speak to a specialist to compare lifetime mortgages

 


Is equity release safe?

All products, including lifetime mortgages, are authorised and regulated by the Financial Conduct Authority (FCA). The FCA ensures all firms offering lifetime mortgages, and similar products meet a certain standard, giving you risk protection. 

Not only does this put them under the obligation to give advice and answer your questions, but they must also provide a document which clearly states the drawdown lifetime mortgage interest rate,  the frequency and conditions of repayments, and other features of the lifetime mortgage. 

Therefore, the Financial Conduct Authority ensures that firms are fair and that you, as a customer, are clear on the policy details of your lifetime mortgage, such as the value of your interest rate. You can check the financial services register to ensure that the business offering you drawdown quotes is FCA approved.

For added security, ensure you choose a lender that is a member of the equity release council. This offers a number of protections, including a no negative equity guarantee. 

best drawdown equity release

How should I choose a drawdown mortgage provider?

Once you’ve decided that a mortgage drawdown is going to be a viable option for you, it’s important to research and choose providers carefully. With so many companies out there, it can be hard for homeowners to make decisions.

Each company will have different terms and interest rates– some of which may suit you – but others won’t. Think about your specific requirements and thoroughly consider all the options available based on your individual requirements.

Keep in mind that this has to work for you and should be aligned with your long term personal objectives and circumstances.

Ask for detailed information from each and take a look at impartial testimonials and reviews online, as these should give you a clearer picture of how easy it is to deal with the provider. It’s also worth chatting to family and friends and asking for help if you need it, before agreeing to your lifetime mortgage. This is because drawdown lifetime mortgage schemes will reduce the proceeds they receive from your inheritance, since a share needs to be paid to the lender to pay back the loan amount.

All drawdown lifetime mortgage providers should be able to provide detailed literature and tailored advice depending on your situation – so after finding several online with positive reviews, it’s worth gathering specific information from each before making a final decision.

Considering later life financial options and care provision? Find more dedicated resources and detailed articles on this site.

What is the best equity drawdown plan?

It is essential that you use a specialist to secure an equity release scheme, including a lifetime mortgage. They will ensure that your best interests are always protected, and also ensure that you don’t waste thousands of pounds on a bad deal, for example, due to a bad interest rate. 

An independent equity release adviser gives you peace of mind that you are borrowing safely, and can explain exactly what interest repayments you will need to make. However, they will charge an advice fee.

There are also other charges to consider when browsing the equity release supermarket. These include administration fees and valuation fees (to estimate the value of your residence).

What are the other types of equity release I can consider?

Lifetime mortgages are the most popular type of equity release.

Alternative options include the use of a Standard lifetime Mortgage or Home Reversion plans.  We recommend that you read up on these too to ensure you are fully aware of the options available to you. Typically, the amount you are entitled to depends on the value of your home, as the tax free cash you receive is a percentage of your estimated property value. 

 

Would you like some help to see whether lifetime mortgages are the right option for you or to find out what the latest deals are?

You can either book an appointment using the calendar, leave your contact details or call us, via Key Equity Release directly on 0800 953 3792 to compare lifetime mortgages.

Book an appointment

Leave your details or call now

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Would you like some help examining equity release and lifetime mortgages?

We work with with Key equity release for them to bring you their market leading equity release support. Through a free consultation they can help you decide what the best options could be for you. 

If you would like some help, please leave your details below and someone will be in touch.

Or you can call Key directly on 0800 953 3792

More interesting articles about Equity Release

how does equity release work

In this article, we answer 22 important questions that you may have about equity release, including what it is, how it works and what the best interest rate deals are.

Alternatives to equity release

Equity Release is not for everyone.  In this article we look at the alternative options that you can consider if you need access to money in later life to pay for care, top up your pension etc.  

Lifetime Mortgages

A lifetime mortgage is the most popular type of equity release scheme, as it’s the most flexible and versatile option. The amount you receive depends on your property value. 

Pros & Cons of Equity Release

In recent years equity release has become a very popular option. This article looks at the pros and pitfalls of equity release and what you need to consider before taking it out.

How much can you borrow

How much you can borrow from equity release varies depending on your age and house value.  In this article we look at how much you could borrow from your  home.  

Drawndown Lifetime Mortgages

A drawdown mortgage is a type of equity release scheme, offering greater flexibility and freedom compared with traditional plans. In this article we explain all that you need to know.

Equity Release Calculator

An equity release calculator will give you a good indication of what you can borrow from your home.  This article explains how the calculator works and also shows you what you can receive.

what happens when you die

One of the big concerns that people have about equity release is what happens to their home and borrowings when they die.  In this article we explain everything you need to know.

Home Reversion Plans

A home reversion plan is primarily suited to individuals over 65 looking for a solution to their finances.  This article explains all you need to know.

Meet the author

Jane Parkinson

Jane Parkinson

Jane is one of our primary content writers and specialises in elder care. She has a degree in English language and literature from Manchester University and has been writing and reviewing products for a number of years.

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Recent reductions in interest rates mean that there are some great equity release deals available. Speak to a specialist.

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0800 953 3792

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