What is a drawdown lifetime mortgage?

Simon Stanney

Last updated 11^th December 2023 by Scott Robertson

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.

You only pay interest on the cash you've taken, so these plans can often work out to be more cost-effective as the compound interest grows at a slower pace.

How a drawdown lifetime mortgage works

Like other types of equity release plans, a drawdown lifetime mortgage is a way to release cash from your home.

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 (this is known as compound interest) – 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)

Some equity release products, like the SunLife Sunrise Lifetime Mortgage, let you make regular repayments to reduce the total cost of borrowing. Even small repayments will lessen the amount of interest you pay over the lifetime of your loan. Your equity release adviser will be able to help you decide what's right for you.

Related articles

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

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). 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 some disadvantages over lump-sum alternatives. Choosing which is better for you will depend on your individual 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 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 – 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
• 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 – if you 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, so 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.

However, 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?

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 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 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.

The thoughts and opinions expressed in the page are those of the authors, intended to be informative, and do not necessarily reflect the official policy or position of SunLife. See our Terms of Use for more info.