A Lifetime Mortgage Where You Take Staged Cash Payments
The most popular form of equity release scheme on the market today. Using the same principle as with all equity release schemes, which is to take an initial lump sum, the difference between the drawdown & the standard lifetime mortgage plan is that with drawdown you don’t take all the funds at once.Practically, you can carefully manage the withdrawal of funds as & when you require them and can therefore tie them in with certain lifetime events or requirements such as extra income, lifestyle purchases, gifting, holidays etc.
How does a drawdown lifetime mortgage work?
The concept of drawdown lifetime mortgages is to create flexibility & this comes on the form of a cash reserve facility which is created at inception of the plan. This whole process starts with the equity release company primarily assessing how much equity you could release as a maximum, based on their lending criteria. They will determine this based on the age of the youngest applicant and the current market valuation of your property. These figures are in turn used to create a loan-to-value percentage, which is then used to calculate the total cash reserve facility that has been created for you.
The only decision you need to make then is to decide, based on your current & future spending plans, how much you initially require. This may take into account your spending plans over the next 12 months, and therefore you can budget for this accordingly. The remaining cash facility you don’t take upfront is then held by the equity release provider until you decide to take further tax-free cash in the future. The good news is that you are only charged interest on the amount of equity actually taken initially, NOT on the cash left in the reserve facility.
The plan is taken on a roll-up lifetime basis where there are NO monthly payments and the interest compounds either annually or monthly for the rest of your life. Depending on the initial lump sum, any future withdrawals made & the interest rate charged on each tranche, will determine the eventual balance. This will be whenever the last person has died or gone into long-term care. At that point the property is usually sold, with the proceed being used to clear the equity release mortgage. Any remaining balance passes into the deceased persons estate.
How do I know what balance remains for further drawdowns?
Planning ahead is an important retirement strategy and making contingency plans is where the drawdown equity release scheme provides security. To know what cash reserve remains moving forward is important. Therefore, the lender will provide you with an annual equity release mortgage statement which will highlight the withdrawals made, the interest accrued to date & the year-end balance. Additionally, they will also advise how much of a drawdown facility you have remaining for information purposes. This provides the confirmation you require.
Are future withdrawals on a drawdown plan compulsory?
There is no compulsion to take anymore withdrawals in the future if none are required. Many people take a drawdown lifetime mortgage, preferring to have the option of needing more cash in the future, but may never use it. Bear in mind that any future withdrawals taken from the cash reserve will be at the interest rate applicable at that time, not necessarily at the rate the plan started, so always check beforehand.
Is the drawdown facility guaranteed to always be available?
The cash drawdown reserve facility is available in the future, subject to each lenders terms & conditions. However, depending on which equity release lender was selected will have a bearing on the future of the cash facility.
For example, some lenders such as LV= have a guaranteed reserve facility for 15 years, regardless. For people who are desperately relying on the availability of the tax-free cash in their reserve facility this guarantee may provide a safer option.
Conversely, other equity release lenders may offer an indefinite reserve facility, albeit can be withdrawn under severe adverse market conditions. These could be a fall in the Bank of England base rate, gilt rates may change significantly, or the lender is no longer transacting equity release business. Therefore, it is important to discuss your future plans with your lifetime mortgage adviser.
More lifetime mortgage lenders have provision for a drawdown facility. The lenders currently offering such plans are: –
1. Aviva Lifestyle Flexible Option – Aviva have a starting age of 55 and a minimum property value of £75,000 to qualify. The minimum initial loan is £10,000 with a £5,000 reserve. Aviva will allow withdrawals in minimum amounts of £2,000 a time with no further admin charges for these drawdowns. Aviva does cap the size of the reserve at 50% of the maximum amount they could have initially borrowed.
2. Just Retirement Roll-up Lifetime Mortgage – Just Retirement start their plans at age 60 but with a lower property value of just £70,000. Again, the minimum initial withdraw is £10,000 with future withdrawals subject to a minimum of £2,000 with no further admin fees. Just Retirement limit the size of the cash facility at 3x the initial cash advance.
3. Hodge Flexible Lifetime Mortgage – a newly innovated drawdown plan with added flexibility. Hodge has all the trimmings of the main drawdown lifetime schemes with plans starting at age 60, minimum initial loan of £15,000, with future withdrawals as little as £1,000 a time. There is however no cap on the size of the reserve facility. The one redeeming feature of the Hodge’s Flexible Lifetime Mortgage is the fact they will allow upto 10% repayments per annum of the original capital borrowed. Therefore, a drawdown lifetime mortgage with repayment ability.
4. LV= Flexible Lifetime Mortgage – A standard drawdown plan with a starting age of 60 and minimum initial loan of £10,000 and subsequent amounts o £2,000 each time further funds are required. LV= cap their reserve also at 3x the initial loan amount.
5. more2life Enhanced Lifetime Mortgage – a drawdown equity release scheme which takes health into account. more2life offer a combination of an enhanced and drawdown plan all in one. Therefore, someone with a history of poor health and looking for a maximum cash reserve facility would suit the more2life plan. A minimum age of 55 applies and minimum initial loan of £15,000. The maximum cash facility is calculated based on age, property value and answers provided to a health & lifestyle questionnaire. In essence the more qualifying illnesses you have, the greater the potential maximum cash reserve will be made available.
Other equity release providers that offer a drawdown option are newlife mortgages with their Flexible Lump Sum Lifetime Mortgage. However, with the re-emergence of the equity release sector this year, we are sure to see new drawdown products entering the lifetime mortgage market for 2014.
Further information on drawdown mortgage schemes please complete our EquityReleaseCalculator contact form stating your requirements or call FREEPHONE 0800 471 4796 where an equity release adviser will be available to assist.
You can find further information on alternative lifetime mortgages here: –
These are drawdown lifetime mortgages UK. To understand their features and risks, please ask for a personalised illustration.