Question 1

What is drawdown equity release?

Accepted Answer

A drawdown equity release product allows you to release tax-free cash from your home in chunks as and when you need it, rather than as one lump sum. The most popular type of drawdown equity release product is a drawdown lifetime mortgage.

A drawdown lifetime mortgage is available to customers aged 55+ and works similarly to having an agreed overdraft on your house. There are rules and criteria on this however for a simple example, when you apply your agreed lifetime mortgage limit could be £100,000 and you could choose to take £10,000 a year for the next ten years to supplement your retirement income.

With a drawdown lifetime mortgage, you’ll only pay interest as and when you choose to release the chunks potentially saving you a lot of money.

The money that you can access but have not yet taken will be held in a reserve pot ready for when you need it.

Alternatively, you could take more upfront and then the rest as and when and if you require it.

With a drawdown equity release/lifetime mortgage, you’ll have the option to make monthly payments. You are not required to, however, if you can afford to do so, it’ll further help minimise the amount of compound interest.

Question 2

How much can you drawdown with equity release?

Accepted Answer

The maximum you can drawdown with equity release is usually uncapped, i.e. up to the value of the reserve facility that you have with your lender.

The minimum amount you can drawdown with equity release is £10,000 each time usually. This money can be used to buy a large purchase or to top up your retirement income.

You’ll start to pay interest on the money as soon as it is drawn down from your reserve fund so seeking great later life mortgage advice is important here to minimise the amount of interest payable.

Any means-tested benefits will also be discussed by your advisor to recommend the best way forward for you with a drawdown lifetime mortgage to maintain your income. It’s important to seek independent retirement mortgage advice to explore all the options available to you.

Question 3

What is equity drawdown?

Accepted Answer

Equity drawdown is a type of lifetime mortgage that allows you to release your equity in smaller chunks as and when you require the money, potentially saving you a lot of money in interest payments.

With equity drawdown, you can take an initial amount of cash and then as and when you require the money in the future, this can be taken. Usually, £10,000 is the minimum you can release each time from your reserve fund.

Our later-life mortgage advisor team will run through both the pros and cons of drawdown equity release during your free consultation to see if it’s right for you.

If you don’t make any repayments to your loan, the interest will add to the loan and compound, meaning the amount of interest will grow as each year passes, as you would be paying interest on the interest already added the previous year.

This will increase the debt against your home, which means there will be less funds left behind, for your beneficiaries or for you to use for later life costs, such as if you need to pay for care.

Question 4

What is a drawdown facility on a lifetime mortgage?

Accepted Answer

A drawdown facility on a lifetime mortgage allows you to hold back some of your available funds until you need the money in future months or years.

With a drawdown facility on a lifetime mortgage, you’ll only pay interest on the funds when you choose to draw them potentially saving you thousands of pounds in interest.

When discussing your mortgage options, our later-life mortgage broker will consider the right product for you based on your personal goals and situation.

When your reserve account has run out, you may be able to apply for a further advance from your mortgage lender.

Question 5

What is the downside to equity release drawdown?

Accepted Answer

With drawdown equity release, there are risks involved and it’s not for everyone. Here are some of the downsides of equity release drawdown:

The inheritance you leave to your family will be reduced.
Equity release will reduce the amount you have available to you to pay for care costs in later life.
If you opt not to make monthly interest payments, the interest will roll up on the plan and could increase significantly over time.
Equity release could affect any means-tested state benefits that you receive and could make you ineligible for future means-tested benefits.

Equity release is a long-term financial product and shouldn’t be used for short-term lending where alternative products such as  bridging loans  should be considered.

Question 6

Can you make additional drawdowns on equity release?

Accepted Answer

Yes, potentially. If you are considering making additional drawdowns on your equity release mortgage it’s always good to speak to your later-life mortgage advisor.

Whether you can make additional drawdowns on your equity release will depend on:

The type of equity release plan you initially took out.
Your age.
How much equity there is in your property.
Your health.
Whether your property is in sole or joint names.

Question 7

What are the pros and cons of drawdown lifetime mortgage?

Accepted Answer

The pros and cons of drawdown lifetime mortgage are:

Pros:

Interest saving by only paying interest when you need the money.
Flexibility as you decide as and when to release the cash.
Can be used to supplement retirement income.
Maintain ownership of your home.
No monthly payments are required, these are optional.

Cons:

You’ll pay slightly more interest than you would with a lump sum equity release mortgage.
Reduced inheritance for your family.
Any means-tested benefits could be reduced.
You’ll have less money to pay for care if you need this in the future.

Question 8

Drawdown lifetime mortgage, a type of equity release, to supplement income.

Accepted Answer

We see a lot of clients who are asset-rich but approaching retirement with the prospect of a significant drop in income.

In many cases, the solution is to look at a small (£10,000+) initial loan with a drawdown facility determined by your anticipated needs and the value of the property.

The tricky part is trying to determine how much you may need over time and whether a drawdown or planned further advance application is the most appropriate.

Although you do not pay interest on funds left in a drawdown facility, the overall size of the facility impacts the interest rate banding so if you arrange too large a facility, you could be adversely impacted throughout the term.

Conversely, if the facility doesn’t meet the expected need, re-broking or needing a further advance later can be expensive.

Question 9

Drawdown lifetime mortgage, a type of equity release, to pay for care needs.

Accepted Answer

Again, difficult to assess but if a client’s overriding priority is to stay in their home for as long as possible, we would always have a conversation about anticipated care provision in the future.

It may be that this covers some help around the house and garden, or it may need to align with a formal care package.

Whatever the need, it is important to take the time to understand as much as possible about what you anticipate and to plan accordingly.

Question 10

Drawdown lifetime mortgage, a type of equity release, as protection.

Accepted Answer

We find that a lot of later-life mortgage advice ignores clients’ protection needs, after all, the payments are optional, and occupancy is not at risk.

The protection issue, however, is as important as with a conventional mortgage but for slightly different reasons.

The most common is in the case of a couple whose income is healthy while both are still alive, but which would be significantly impacted if one of them, typically the one with the higher retirement income, should die.

In this case, it is useful to look at current outgoings and whether they could be met on either survivor’s income.

If not, there needs to be a discussion about what outgoings could be sacrificed, or how the shortfall will be met.

It is rare to find someone happy to think of having to tighten their budget significantly while grieving.

Even if downsizing is the ultimate plan, it is important, if possible to make enough provision so that the survivor’s ongoing income needs are met for long enough to mean that downsizing (or any other strategy) doesn’t need to be a knee-jerk reaction as this would exponentially increase a client’s vulnerability when their resilience is likely to be at its lowest – care must be taken around estate planning when considering drawdown as protection.

Question 11

Drawdown lifetime mortgage, a type of equity release, for known future expenses.

Accepted Answer

This is often a little easier to quantify and deals with the sort of situation where retirement means a drop in income which maybe doesn’t affect day-to-day living but would impact on the clients’ ability to meet future significant expenses. These are generally holidays, replacement vehicles, planned gifting and future home improvements/maintenance.

Often this process involves a degree of expectation management and talking to clients about making the available money stretch with budgeting from monthly income to reduce the burden on what they need to take from a drawdown facility.

Drawdown Lifetime Mortgage

What is a drawdown lifetime mortgage?

Drawdown equity release advice

Is a drawdown lifetime mortgage a good idea?