Last updated 8th Jan 2020
6 min read
A drawdown lifetime mortgage is a type of equity release plan that lets you take cash from your home as and when you like – rather than in a single lump sum.
It’s more flexible than a lifetime mortgage as you have the option to release your cash over time. You’ll get an initial lump sum followed by an approved cash facility that you can ‘draw’ from as and when you like.
You only pay interest on the cash you’ve taken so these plans can often work out to be more cost-effective as the interest grows at a slower pace.
How a drawdown lifetime mortgage works
Like other types of equity release plan, a drawdown lifetime mortgage is a way to release cash from your home without having to downsize.
You’ll also need to meet many of the same requirements, like being aged 55 or over, a homeowner and a UK resident.
But unlike some other plans, a drawdown lifetime mortgage gives you the freedom to release money as and when you need it. Here’s a quick rundown of how it all works.
- Your provider agrees to an overall sum of money you can borrow, based on your age, state of health and property value
- You take an initial lump sum and the rest is kept in a cash reserve facility, ready for you to ‘draw down’
- Then, you can release smaller amounts as and when you need them (minimum amounts apply, but there’s no new set-up fees)
- Interest is added to the money you’ve drawn down – rather than on the whole amount you borrow for the duration of the plan
- There are no monthly repayments to worry about – the full loan and interest are repaid when your home is sold (which is usually when you pass away or move into permanent care)
Use our 60 second equity release calculator
Use our 60 second equity release calculator
Use our equity release calculator
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equity release calculator
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Drawdown lifetime mortgage vs. lump sum lifetime mortgage
A drawdown lifetime mortgage is a variation of a lump sum lifetime mortgage (like a roll-up lifetime mortgage). Here are the main differences:
- More flexibility and freedom – you can release cash from your reserve as and when you need it, and leave some for the future
- Less interest to pay – interest is only added to the amount you draw down, and no interest accumulates while your funds are still in the reserve
- Reduced impact on inheritance – less to pay in interest means there could be more money left for your family
- Reduced impact on 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
Advantages of a drawdown lifetime mortgage
- Interest doesn’t mount up as quickly – because you only pay interest on the amount of cash you release, rather than the total sum in your reserve
- Flexible access to tax-free cash – you can take it as and when it suits you, and it’s yours to spend as you wish
- Maintain home ownership –so you can benefit from any future increase in value
- Manage means-tested benefits – you can help avoid affecting state benefits by taking smaller amounts
- 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
- No negative equity guarantee – this protection means you can never leave your family in debt
- Moving house is still possible – just as long as the home you’re moving to meets the criteria of your lender
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
- Interest rates can be slightly higher – when compared to some other types of lifetime mortgage
- Different interest rates can apply to new withdrawals – depending on the prevailing interest rates at the time and they may be greater than your initial rates
- There can be limits – to 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
- Early-repayment charges can be hefty – if you want to pay off the loan early
- 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
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 so you’ll need to speak to your adviser to get all the information you need before you make any decisions.
Interest is normally accumulated and only 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?
Borrowing money can prove difficult in later life, especially if you’re retired. 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 plan is best suited to you. To make sure you understand the features and risks of a lifetime mortgage ask for a personalised illustration.
Other types of lifetime mortgage
For some, a drawdown lifetime mortgage can be a practical way to boost your 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.
If you think a drawdown lifetime mortgage (or another type of equity release plan) could be right for you, don’t hesitate to call The SunLife Over 55 Equity Release Service.
We’re here to put you in touch with the expert advisers, so you can get the advice you need before you make any final decisions.