Drawdown Lifetime Mortgage – All your questions answered

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Drawdown Lifetime Mortgagedrawdown lifetime mortgage

We know how confusing it can be when you looking at different types of equity release products, such as a drawdown lifetime mortgage.

Making a wrong and 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 it is
  • the benefits and drawbacks of a lifetime mortgage

As care becomes a more common requirement for older people and their families, funding options continue 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.  This would include the use of a drawdown lifetime mortgage, which is a type of equity release.  You can read here more 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 lifetime mortgage – a flexible plan fairly new on the market that is increasing in popularity amongst over sixties requiring care or needing to release funds for home improvement or retirement.

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 right option for you.   

Considering taking out a drawdown lifetime mortgage? Find expert insights, comprehensive advice and a full description of the benefits and drawbacks of a drawdown lifetime mortgage below.

See how much money you you can get out of your house using Equity Release

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. You then have the option to take an initial lump sum, with the opportunity to withdraw smaller amounts as and when required.

This often represents a more cost-effective approach to equity release in its traditional format, as you only take as much money as you need out of your property. That means that over the duration of the plan you can expect to pay less interest on the same amount of money obtained from a drawdown mortgage than with a traditional scheme.

Drawdown mortgages have many benefits – 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 money 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.

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.

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.

Benefits of a drawdown 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 plan 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 – 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 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 welfare payments and 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.

Drawbacks of a drawdown lifetime mortgage 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 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 are able to take, and subsequent payments after that
  • These terms can vary depending on the provider, so it’s important to shop around
  • 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 this type of equity release is usually more beneficial from a welfare perspective, it will still affect the value of your estate and may affect your entitlement to benefits
  • If you decide to repay the loan early you may be subjected to early repayment charges

Choosing drawdown lifetime mortgage providers

Once you’ve decided that a drawdown mortgage is going to be a viable option for you, it’s important to research and choose drawdown lifetime mortgage providers carefully.

Each company will have differing terms – 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 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.

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.

Who can help me find the best drawdown lifetime mortgage?

It is essential that you use a specialist to secure an equity release scheme.   They will ensure that your interests are always protected and also ensure that you dont waste thousands of pounds on a bad deal.

There are two options for you to consider.

Option 1 – Find an advisor in our directory of advisors

We have created a directory of advisors that specialise in helping people find the right equity release provider.  The directory has advisors listed from all over the country.   You can access the equity release advisor directory here.

Option 2 – Let us, the UK Care Guide, find an advisor for you

If you do not feel confident in choosing an advisor, you can leave your details below, and we will find an advisor for you.   We do not charge for this service and it is absolutely free.

Here is a video from Martin Lewis on ‘This Morning’ explaining why you should speak to a specialist before taking on an equity release plan.

What are the other types of equity release I can consider

Alternative options to to a drawdown mortgage include the use of Lifetime Mortgages 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.

Lifetime mortgages are the most popular type of equity release.

Here is a video explaining how a lifetime mortgage works.

In essence a home reversion plan involves selling all or part of your property for a sum less than its market value. In return you’ll receive a tax-free lump sum or regular guaranteed income. Meanwhile you’ll be able to remain living at home as a tenant, completely rent-free.

See how much money you you can get out of your house TAX FREE using Equity Release

If you would like some independent help in speaking to someone to talk you through your options for a drawdown mortgage, please leave your details below and we will arrange for someone to be in touch.