What is a drawdown lifetime mortgage?

Drawdown lifetime mortgage vs. lump sum lifetime mortgage

A drawdown lifetime mortgage is a variation of a lump sum lifetime mortgage. The main difference is that with a lump-sum lifetime mortgage, you release your equity all in one go. With a drawdown, you release smaller amounts as and when you need them.

Drawdown lifetime mortgages have some advantages and disadvantages over lump-sum alternatives. Choosing which is better for you will depend on your circumstances.

What are the advantages of a drawdown lifetime mortgage?

• Less interest to pay – You only pay interest on the amount of cash you release, rather than the total sum in your reserve. So the total interest owed builds up more slowly.
• Flexible access to tax-free cash – You decide to take it as and when it suits you. And it's yours to spend as you wish.
• Manage means-tested benefits – You're in control of your finances, so you can organise things in a way that won't affect your means-tested welfare payments and benefits.
• Less impact on inheritance – Because the interest builds more slowly, there could be more money left for your family to inherit.
• Maintain home ownership – So you can benefit from any future increase in value. (This also applies to lump sum lifetime mortgages.)
• No monthly repayment – The loan and interest are repaid when your home is sold, either when you pass away or move into long-term care. (This also applies to lump sum lifetime mortgages.)
• Choose to make repayments if you wish – Certain equity release products allow you to make repayments to lessen the cost of your borrowing. This will lessen the amount of interest you pay over the lifetime of your loan. (This also applies to lump sum lifetime mortgages.)
• No negative equity guarantee – This feature is available with products that are fully compliant with the Equity Release Council’s standards. This protection means you can never leave your family in debt with equity release. However, a lifetime mortgage may result in limited or no property equity remaining, and will reduce your financial options in the future. (This also applies to lump sum lifetime mortgages.)
• Moving house is still possible – Just as long as the home you're moving to meets the criteria of your lender. (This also applies to lump sum lifetime mortgages.)

What are the disadvantages of a drawdown lifetime mortgage?

• Equity release can reduce what you leave as an inheritance – Which means you will leave less money for your loved ones. (This applies to all kinds of equity release.)
• Interest rates can be slightly higher – This is compared to some other types of lifetime mortgage, although it isn't always the case.
• Different interest rates can apply to new withdrawals – This depends on the prevailing interest rates at the time and they may be greater than your initial rates.
• There can be limits – You may be limited in the number of times money can be released in one year.
• Means-tested benefits could still be affected – So make sure you get trusted financial advice before you make a decision.
• Further amounts aren't guaranteed – If you want to increase the total amount of equity you have agreed to drawdown over a specific period, you'll have to apply for a further advance.
• Early-repayment charges can be hefty – So check with your equity release adviser if you think you'll want to pay off the loan early. (This also applies to lump sum lifetime mortgages.)

How much does it cost?

A drawdown lifetime mortgage normally has a fixed sum of interest on each amount you borrow.

Drawdown equity release interest rates can vary. You'll need to speak to your adviser to get all the information you need before you make any decisions.

Interest is compounded, meaning you pay interest on the original loan amount, plus on the interest that's already been added. So the amount you owe can go up quickly.

But with a drawdown lifetime mortgage, the amount you owe won't grow as quickly as a lump sum lifetime mortgage. This is because you only pay interest on the money you've drawn down.

Anything you owe is repaid once you die or go into long-term care.

There may also be fees to set up drawdown equity release, such as solicitor fees and administrative fees.

Is a drawdown lifetime mortgage right for you?

Your options for borrowing money can be more limited in later life. This is because lenders usually look at whether or not you have enough income to pay back your loan, as well as your age. This isn't the case with equity release.

If you're aged 55 or over, you could be eligible for a drawdown equity release scheme (or another type of equity release) with no affordability checks. So, if you want access to regular or occasional small amounts of cash to boost your income, it could be the right option for you.

Remember, the money is yours to spend as you wish – whether you'd like to make life more comfortable, treat yourself to the holiday of a lifetime, or lend your family a helping hand.

Just bear in mind that, if you still have a standard residential mortgage on your property, the money from your drawdown lifetime mortgage will go to pay this off first.

An expert adviser will be able to help you decide whether or not drawdown equity release is right for you, and which product is best suited to you. To make sure you understand the features and risks of a lifetime mortgage ask for a personalised illustration.

Equity release isn't right for everyone. Other options include downsizing, remortgaging, or putting any savings and investments you may have towards your retirement.

Other types of lifetime mortgage

For some, a drawdown lifetime mortgage can be a practical way to boost income in later life. But if this particular option isn't right for you, there are other types of lifetime mortgage, or other types of equity release plans.

Related articles

• What is a lifetime mortgage?
• How much does equity release cost?
• What is equity release?