A Complete Guide to Drawdown Lifetime Mortgages
You can earn a tax-free income by simply staying at home!
With over 1 million Brit’s having to postpone retirement as a result of Covid-19, more and more people are desperately seeking income.
Can you relate? Interestingly, 55% of the total 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’s a drawdown lifetime mortgage and how does it work.
- How drawdown lifetime mortgages can aid you through retirement.
- Who’ll qualifies for this type of plan.
As one of the leading experts in the equity release field, we’ve combed the market, research plans from all regulated lenders. In other words, we’re in the perfect position to educate you on all things equity release.
Could a drawdown equity release plan save your retirement? Find out now!
What’s a Drawdown Equity Release?
As the most popular type of lifetime mortgage, drawdown equity release plans provide you with a flexible cash reserve facility that offers easy access to your capital.
The drawdown lifetime mortgage plan1 was initially developed in response to the conventional schemes, where you could only receive a lump sum and from there, be responsible to budget your funds.
Things are looking completely different. You can take out an initial lump sum and then withdraw from a drawdown facility whenever you require cash.
How Does a Drawdown Equity Release Work?
Like other equity release schemes, a drawdown plan allows you to unleash the equity in your home without having to downsize.
You have to meet certain conditions like:
- You have to be aged 55 or over.
- Own a home in the UK.
- Your property is worth atleast £70,000.
However, unlike other schemes, the drawdown plan provides you with the liberty to release capital as and when you need it. Here is a comprehensive run-down on how this scheme works:
- First, the lender will agree to an overall amount you can borrow, depends on your age, state of health and estate’s value.
- You will then take an initial lump sum2 and put the rest in a cash reserve facility, all set for you to ‘drawdown.’
- After taking out the initial amount, you will then be able to release smaller amounts as and when you require them (minimums apply, but there are no new set-up fees).
- You’ll only pay interest on the cash you’ve recieved and not on the money in your drawdown facility.
- You will not 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 these 8 benefits out!
- The interest doesn’t mount up as quickly – since you only have to pay interest on the amount you withdraw, rather than the total sum in your reserve.
- You have flexible access to tax-exempt cash – you can draw out your money as and when you need and use it as you wish.
- You can continue living in your residence – you can benefit from any future increase in property value.
- Unlike other plans, it allows you to manage your means-tested benefits –enables you to avoid affecting state merits by taking lesser amounts.
- You have no obligation to make any monthly repayment – you only repay the loan and interest when the plan provider sells your home .
- There’s no negative equity3 guarantee – it safeguards you, and it allows you not to keep your family in debt.
- You can always decide to move house – the only condition is that the home you’re moving to needs to match the criteria of your lender.
- You might have the chance to obtain a higher maximum cash drawdown scheme now with the invention of 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 pitfalls of a drawdown lifetime mortgage:
- Some lifetime mortgage companies can revoke your rights to a drawdown facility, but only if you violate the agreement.
- You’ll be set with a fixed interest rate, even if interest later drops. However, this isn’t too severe as you can review your plan at a later stage.
- Some equity release companies limit the size of the drawdown facility, relying on the initial loan amount.
- Once you have used up the whole reserve, your loaner will require you to get further advice and an additional borrowing application.
A Drawdown Equity Release and 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 of affecting 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 perks 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 totally depends. Factors considered are:
- Your property portfolio: your lender will send a surveyor over to give you a professional valuation.
- Your age and health condition
It’s, however, possible to unlock between 20% and 50% of the equity (or value) in 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, considering it has fewer chances of affecting your means-tested advantages among other pros.
However, even with all the fantastic features of this plan, it’s always vital that you consider all your choices carefully and seek specialist advice from your financial consultant. It would be best if you also involved your family to ensure you make the best decision.
Before making your final decision, you must be aware of the equity release pitfalls!