Drawdown lifetime mortgages
What is a drawdown lifetime mortgage?
A drawdown lifetime mortgage enables you to release the money you have tied up in your home by providing you with an initial advance, together with an approved 'cash facility' that you can draw on, as and when you need it. Interest is then only charged on the amount you take rather than the full amount available to you. It is important to note that a lifetime mortgage is secured against your home.
Drawdown lifetime mortgages are simply a variation of lump sum lifetime mortgages, but with the following benefits:
- You only incur interest on the amount you actually have borrowed so the interest that builds up over time is likely to be less than if you had taken all the money at once.
- You can often take further withdrawals in small amounts from your cash facility when you need them – this can be done within a couple of weeks of the initial request.
They do however also have the following downsides compared to lump sum lifetime mortgages:
- Usually the maximum amount you are allowed to borrow in your ‘cash facility’ is slightly smaller than you would have been able to borrow with a lump sum lifetime mortgage.
- Every time you borrow from your cash facility a new interest rate could be applied to the amount you are asking to borrow – based on what the interest rate at the time is. This means that depending on what happens to interest rates, the cost of your future borrowing could be higher or lower than that agreed when you first take out the mortgage.
- There are often limits on the maximum amount you can take in your cash facility relative to the original mortgage – so a maximum of twice the original amount you borrowed for instance.
- Sometimes there can be further admin charges for each time you draw on your cash facility.
Typically how much can you borrow?
The maximum amount you can borrow will be determined by a number of factors, including your age and the value of your property. However, the likelihood is that you could borrow between £10,000 and £600,000 if you live in England, or up to £250,000 if you live in Wales, Scotland and Northern Ireland.
Want to find out your property value?
You can look at the Halifax House Price Index, or mouseprice.com, or even rightmove.co.uk to get an idea of property values in your area. But be aware that you may need to pay for a current valuation on your property, if you go ahead with an application.
Could I get this type of lifetime mortgage?
Everyone's circumstances are different. You should talk to a professional adviser, and look at all of those points in detail before considering a lifetime mortgage. However, in general to qualify for a drawdown lifetime mortgage you need to be:
- aged 55 and over
- own your own home
- a UK resident.
Your property must also be:
- in England, Scotland, Wales or Northern Ireland
- your main residence
- worth a minimum of £70,000
- made of standard construction.
How much does it cost?
Drawdown lifetime mortgages charge a fixed sum of interest on each amount you borrow. You are only charged interest on this amount and not the remaining amount in your cash facility. You make no repayments during the lifetime of the loan and interest is accumulated. Because you make no repayments, the interest that the loan attracts is known as compound interest, and it can mean that the total amount you end up owing could be significantly more than you originally borrowed. For an explanation of compound interest please take a look at this short film:
Is there anything else I should know about drawdown lifetime mortgages?
Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate.
We recommend that you talk to a professional adviser before making any decisions about buying equity release products. If you don’t have a professional financial adviser, go to thepfs.org or unbiased.co.uk.
Alternatively, Just Retirement Solutions - our sister company - offers an equity release advice service that could help you decide if equity release is right for you.