Drawdown Equity release could be a suitable way to unlock the value tied up in your property without having to sell your home.
It’s a type of equity release that offers a more flexible approach than traditional lump-sum plans.
Read on as we explain all about drawdown equity release plans and how they work.
Please Note: The content on this page is designed to be a helpful starting point for understanding equity release. It explores the concept, different plan types, and the general process involved. However, equity release is a complex financial decision with significant implications for your long-term financial security. To determine if equity release is the right option for you, it’s essential to consult with a qualified financial adviser who specialises in equity release products.
What is a drawdown lifetime mortgage?
A drawdown lifetime mortgage is a type of equity release plan that allows you to take tax-free cash from your home equity on a flexible basis.
You’ll receive an initial lump sum, and then additional money can be withdrawn when you like.
You only pay interest on the money you’ve actually taken out, so these plans often work out to be a lot more cost-effective than the normal lump sum mortgages.
You will find more useful information in our Guide to Equity Release
How does drawdown equity release work?
Like other types of equity release plans, a drawdown lifetime mortgage is a method of releasing cash from your home.
But unlike some other plans, it gives you the freedom to release money as and when you need it.
First off you need to be aged 55 or over and be a homeowner. A lifetime mortgage taps into your home equity, so you either need to be mortgage free or towards the end of your mortgage term.
After valuing your home, the equity release provider will confirm the maximum amount that they are willing you lend you. This amount will be based on your age and property value.
Older borrowers can release a higher percentage of equity than younger borrowers.
You take an initial lump sum (min £10,000), and the rest of the money is held in a drawdown reserve.
You might choose to receive a set amount as regular payments or you may prefer to take different amounts on an ad hoc basis.
You will find more useful information in our article: How Does Equity Release Work?
The drawdown reserve
Your drawdown reserve is the remaining portion of the total equity you’re eligible to release after you take your initial cash sum. Think of it like a flexible line of credit secured against your home.
Your provider will remind you of how much is left in your reserve, usually with your annual statement.
How do you access the money?
To make a withdrawal you would need to contact the lender, and they will then confirm your request in writing. After a short period of time the money will be transferred to you, and interest begins to be charged.
Advantages
Only drawing the money that you need will help to keep the interest charges down. You only pay interest on the amount of cash you release, so the total interest owed builds up more slowly.
As you are in charge of when money is taken, it’s a very flexible facility to have available.
There is less of an impact on inheritance (when compared to taking a lump sum), as the debt accrues more slowly, leaving more for your family.
It may also help where you are in receipt of means-tested benefits, as you can organise payments to minimise any adverse effects.
Disadvantages
The initial rate of interest charged can be higher than a lump sum equity release plan.
And different rates can apply to future withdrawals, these will be affected by general interest rates and the Bank of England base rate.
There may be limits on the number of ad-hoc withdrawals you make each year.
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Do they cost more money than lump sum plans?
Because of the inherent flexibility, the interest rate will be slightly higher than a comparable lump sum plan.
But it should cost you less overall to have a drawdown plan if you are not looking to spend the money all at once.
Although future withdrawals only accrue interest charges at the point you receive the cash, the actual interest rate is not known.
Future drawdowns are charged at the lender’s interest rate at the time of withdrawal.
Is drawdown equity release a good idea?
Whether it is, or it isn’t, a good idea is not possible to answer in this article.
Equity release plans are highly regulated and everyone needs to receive professional advice before they take one out. This process will allow you to see both the advantages, and disadvantages, for your own situation.
How can you get a drawdown mortgage?
For all lifetime mortgages you need to be 55 or over and be a homeowner.
You are also required to take financial advice before being allowed to apply for an equity release plan.
Your adviser will be able to recommend a suitable plan, and provider, once they have understood your situation and any future plans you may have.
Drawdown equity release mortgages are the most popular form of equity release, with a good choice of providers.
Where to go for advice
Only a suitably qualified financial adviser is permitted to help you set up or amend an equity release plan.
They will be able to fully explain your options, the costs involved and the advantages and disadvantages.
Once they fully understand your situation they can begin to research your options and select a suitable equity release solution.
Let Respect Mortgages help you take the next step.
We can match you to an award winning equity release specialist, with over 25 years experience helping people just like you. Importantly they’re also members of the Equity Release Council.
Please call us on 0330 030 5050 for more details.
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Do you have to pay tax on equity release?
Many borrowers question whether the money raised is taxable. The good news is that the money you receive from an equity release plan is tax-free.
We explain why.
Also in this section
Equity Release Hub
Equity Release
Alternatives to equity release
Am I Eligible for Equity Release?
Benefits of Equity Release
Equity Release Guide
How Does Equity Release Work?
Things to Consider Before Taking Equity Release
What is Equity Release?
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