Not all equity release drawdowns are the same
Release equity in amounts over time
A lifetime mortgage ‘drawdown’ plan has become a popular way to release equity. This will start with an initial release, with the lender agreeing a ‘drawdown’ facility of equity that can be released in the future, as and when the homeowner needs further tax-free cash.
Release a tax-free lump sum
Most lenders offer drawdown options within their lending offering; however, it is important to note that the ‘drawdown’ facility offered by lenders and therefore the amount available for future release does differ from lender to lender.
Retain full ownership of your home
The following example shows a married couple taking an initial release of £113,203 along with the amounts available to them for future drawdown. Example shows an initial release of £113,203
- Lender A providing a drawdown facility of £37,672
- Lender B providing a drawdown facility of £52,547
- Lender C providing a drawdown facility of £82,297
- Lender D providing a drawdown facility of £99,297
Therefore, the amount available for future release is not the same from every lender. For somebody who has a requirement for smaller future releases, Lender A could be the most suitable. Conversely, if somebody had a requirement for larger future releases, lender C or D could be the most suitable.
How does a drawdown lifetime mortgage differ from a lump sum lifetime mortgage?
Here are some of the key differences:
- A drawdown lifetime mortgage offers more freedom and flexibility. You will start with an initial lump sum, then after that, you can release the cash from your reserve as and when you need it.
- You will have less interest to pay. The interest is only added as you withdraw the money, therefore, the funds left in the reserve won’t accrue interest.
- Your loved one’s inheritance may be less impacted. As there is less interest accumulating with a drawdown as there would be with a lump sum, more money could be left for your family and loved ones.
- Your means-tested benefits may be less impacted upon. This is because you can release the cash in smaller amounts over time. Our independent equity release advisers can provide you with an independent report showing any impact releasing equity may have on your existing benefits.
How do you access money held in a reserve facility?
The ease of being able to access cash from your reserve as and when you please is one of the great things about a drawdown lifetime mortgage. To access the money, you can contact your lender. They will then send you an offer letter which will inform you on the money they are offering you along with any terms. This document will be in similar format to the original offer documents which were received upon starting your plan. To proceed, you simply sign the acceptance form, return it to the lender, and they deposit the funds directly in your bank account. In most cases, you won’t be required to have an addition inspection of your property, nor will you be required to have further financial or legal advice. For this reason, we usually expect future withdrawals to be much quicker than initial borrowing.
Exhausted your draw down reserve?
Once your lifetime mortgage reserve facility has been exhausted, you may still have the option of a further advance from your existing lender if additional funds are needed. This will require further financial advice and an additional property valuation. You also have the option of replacing your existing lifetime mortgage plan with a new one.
Getting the right advice
Lifetime Mortgage’s offer a wide range of different features such as inheritance protection, downsizing protection, and the ability to make ad hoc payments to avoid compounding interest. An independent equity release adviser with access to the whole equity release market will be able to advise if a Lifetime Mortgage Drawdown plan is right for you.
This is a lifetime Mortgage. To understand the features and risks, ask for a personalised illustration.
