Lifetime mortgages come in numerous options to ensure all homeowners have a plan that works best for them. You may be someone who needs a little cash right now and may need more in the future, but you do not want to take it all out at once. If this sounds like something you would be interested in then drawdown lifetime mortgage is a good place to start reading. All other lifetime mortgages are designed to provide one lump sum of tax free equity, but a drawdown equity release has a cash reserve facility.

The Inner Workings of Drawdown Schemes
A drawdown lifetime mortgage provides a small initial lump sum. Different providers offer a different minimum, but usually it is either £10,000 or £15,000. This initial sum must be taken at the completion of the equity release application process. It is not the maximum amount of funds available. The provider sets up a cash reserve facility that can be drawn on when the homeowner needs more funds. Typically withdrawals need to be in a range of £1,000 to £5,000 increments. The provider sets the minimum for initial and secondary withdrawals which usually have no admin fees associated with such withdrawals.

As long as there are funds in the cash reserve facility a homeowner can continue to withdraw tax free cash over time. Like other lifetime mortgages the amount available on a drawdown lifetime mortgage is determined by age and property valuation. It is also further established by the maximum loan to value percentage which is determined by age and property valuation. For some homeowners a maximum percentage is not necessary so a small amount can be set up via their drawdown equity release.

Interest is charged on the initial sum withdrawn. The rate is fixed and compounds onto the capital sum until the loan is repaid at death or permanent move to a care location. Subsequent withdrawals will have a current market interest rate that is also fixed. This means the rate is based on the Bank of England base rate and is subject to change on secondary withdrawals.

Funds not used and remaining in the account at time of death are considered property of the beneficiary unless they are needed to repay the outstanding mortgage and interest balance.

• A smaller initial lump sum can be taken
• Additional funds are available as needed in the future
• Interest only accrues on funds withdrawn
• More inheritance should be left for the beneficiaries

• Most reserve facilities are not guaranteed & can be withdrawn
• Some homeowners need more than the maximum loan to value right away versus waiting
• Interest still compounds onto the loan outstanding
• The reserve facility could be restricted in size

You may notice that some advantages can become disadvantages for certain homeowners. However, the drawdown equity release mortgage is now the most popular way for the over 55’s to take a release of equity from their main residence. For those who only need a small amount at first and wish to have access to more funds at a later date, the drawdown mortgage is perfect. There are also voluntary repayment schemes that can be attached to drawdown products that might make these loans more feasible and thereby allow capital to be repaid back should circumstances necessitate.

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