A drawdown equity release is a type of lifetime mortgage that allows you to place your equity in a drawdown facility that you can access when needed. A benefit of this option is that you’ll only pay interest on the cash you’ve released.
A Complete Guide to Drawdown Lifetime Mortgages in Jan 2022
You can earn a tax-free income by simply staying at home!
With more than 1 million Brits having to postpone retirement as a result of Covid-19, more and more people are desperately seeking income to get through their golden years.
Can you relate? Interestingly, 55% of homeowners in the UK are over 60, so even if you’re cash strapped, you could be sitting on a goldmine and not even know it.
We’ll help you discover:
- What a drawdown lifetime mortgage is and how it works in Jan 2022.
- How drawdown lifetime mortgages can aid you through retirement.
- Who qualifies for this type of plan.
As one of the leading experts in the equity release field, we’ve combed the market and researched plans from all regulated lenders. In other words, we’re in the perfect position to educate you on everything to do with equity release.
Could a drawdown equity release plan save your retirement? Find out now!
What’s a Drawdown Lifetime Mortgage?
A drawdown equity release plan is the most popular type of equity release. It provides you, if you’re aged 55 or older, with a flexible cash reserve facility that offers easy access to your capital.
Use our releasing equity calculator to see how much you can release.
How Does a Drawdown Equity Release Work?
A drawdown equity release works by you taking out an initial lump sum and then withdrawing from a drawdown facility whenever you require cash. You retain 100% ownership of your home and you can live on your property until you pass away or enter permanent care.
Who Qualifies for a Drawdown Equity Release Plan?
You might qualify for a drawdown equity release plan if you’re aged 55 or older, and own a property in the UK that’s valued at £70,000 or more.
Must read: Equity Release Criteria
A Comprehensive Run-Down on How a Drawdown Equity Release Works In Jan 2022
- Equity determined – First, the lender will agree to an overall amount you can borrow, depending on your age, state of health, and estate’s value.
- Initial Lump Sum – You can take an initial lump sum2 and put the rest in a cash reserve facility, all set for you to ‘drawdown.’
- Drawdown Facility – After taking out the initial amount, you will then be able to release smaller amounts as and when you require them (minimum amounts apply, but there are no new set-up fees).
- Less Interest – You’ll only pay interest on the cash you’ve received and not on the money in your drawdown facility.
- Zero Repayment Obligation – You won’t have to worry about making any monthly repayments. The loan, plus interest, will only be repaid from the sale of your home when you pass away or move into permanent care.
8 Pros of a Drawdown Lifetime Mortgage Plan
Drawdown lifetime mortgage plans are different from other schemes, hence their increasing popularity. They have some critical merits which may make them one of the smartest financial decisions you can make.
Check out these 8 benefits!
- Less interest: you only have to pay interest on the amount you withdraw, rather than the total sum in your reserve.
- Flexible tax-free cash: you can withdraw your money as and when you need, and use it as you wish.
- Stay put: you can benefit from any future increase in property value, as you’ll retain 100% ownership.
- Maintain means-tested benefits: any benefits you get won’t usually be affected.
- No monthly repayment: with the best equity release company you only need repay the loan and interest when the plan provider sells your home.
- No negative equity guarantee3: it safeguards you, and means your family won’t be in debt.
- Free to move: the only condition is that the home you’re moving to needs to match the criteria of your lender.
- Maximum equity: you could release more thanks to the enhanced lifetime mortgage range.
4 Pitfalls of a Drawdown Lifetime Mortgage
Like any financial product available, there are always certain limitations and drawbacks. The key is to be aware of these.
Here are the 4 disadvantages of a drawdown lifetime mortgage:
- Rights can be revoked – Some lifetime mortgage companies can revoke your rights to a drawdown facility, but only if you break the agreement terms.
- Fixed interest – You’ll have a fixed interest rate, so you won’t benefit if rates later drop. However, this isn’t too serious as you can review your plan at a later stage.
- Limited drawdown – Some equity release companies limit the size of the drawdown facility.
- Re-application – Once you have used up the whole reserve, your lender will require you to get further advice and an additional borrowing application.
Learn More: Discover the Pitfalls of Equity Release
A Drawdown Equity Release & Your Means-Tested Benefits
One of the reasons why most people opt to take the drawdown option is because it’s less likely to impact your means-tested benefits than other forms of equity release.
With bank savings limits imposed by the Department of Work and Pensions (DWP) and local authorities, it’s crucial that you don’t breach your balances when you release equity – this has the potential to affect your eligibility to certain benefits.
Depending on your provider, they might be able to tailor the projected initial amount used in conjunction with any existing bank balance. That way, you can theoretically evade losing any benefits you claim.
However, before you jump straight in, it’s essential to get advice from your broker and a financial adviser so that they can thoroughly evaluate your circumstances.
How Much Can You Borrow?
This depends. Factors considered in Jan 2022 are:
- Your property portfolio: your lender will send a surveyor over to give you a professional valuation.
- Your age and health condition
It is possible to unlock between 20% and 50% of the equity (or value) locked into your estate, though the exact amount will vary from one individual to another, depending on your circumstances.
That said, it only takes a few seconds to see how much tax-exempt cash you could unleash with our online equity release calculator.
Taking out a drawdown lifetime mortgage might be one of the best commitments you will ever make, particularly as it is less likely to affect means-tested benefits.
However, even with all the fantastic features of this plan, it’s vital that you consider all your choices carefully and seek specialist advice from your financial consultant. It is also best to involve your family to ensure you make the best decision.