Drawdown lifetime mortgages
What is a drawdown lifetime mortgage?
A drawdown lifetime mortgage enables you to release some of 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 charged on the amount taken rather than the full facility, meaning no interest is charged on the unused cash facility. The interest rate charged on your lifetime mortgage will build up on a compound basis meaning interest is charged on the amount of your mortgage as well as all the interest that has built up in previous months.
For an explanation of compound interest please take a look at this short film:
Drawdown lifetime mortgages are simply a variation of lump sum lifetime mortgages, but with the following benefits:
- You will usually take a smaller amount with the remaining available in a cash facility and are only charged 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 (please note; interest will build up on a compound basis)
- 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 have in your cash facility, relative to the original mortgage.
- Sometimes there can be further admin charges for each time you draw on your cash facility.
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. The interest rate you are charged will be set according to our interest rates at the time you take out your initial advance. The rate is fixed and so guaranteed not to change over the lifetime of your mortgage. If you release money from you approved cash facility, the interest rate for those advances will be set at that time and may be higher or lower than the rate you are paying on your initial advance.
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, HUB Financial Solutions – part of the Just Group – offers an equity release advice service that could help you decide if equity release is right for you.