A drawdown lifetime mortgage is a specially designed equity release. It is not for everyone. A standard lifetime mortgage rolls up the interest onto the principle sum borrowed against the property. The sum is usually the maximum amount awarded for loan to value, which is determined by age and property valuation. A drawdown lifetime mortgage offers an initial lower sum with a cash reserve facility set up. A homeowner can withdraw additional funds as needed. There are benefits to this access versus gaining one lump sum all at once.
Standard advantages exist. The funds can be used as the homeowner wishes. The homeowner will still own the home and can remain in the house until their death or need for permanent long term care. Besides these advantages drawdown lifetime mortgages have a few others.
• Interest rolls-up only on initial capital sum and funds withdrawn from the cash reserve facility.
• There is a potential to leave an inheritance behind.
In comparison to standard lifetime mortgages, a drawdown equity release is advantageous due to the way interest compounds onto the loan. When interest is added each year based on an APR, the principle funds will double every 10 to 12 years. With a drawdown mortgage the initial sum is smaller than the maximum given with a roll up mortgage. Furthermore, interest only accrues on the funds used, allowing the homeowner to retain better control of their funds.
Funds that are easily accessible require no thought particularly when interest is already being charged. A cash reserve facility is accessible but it requires the thought of whether the homeowner really wants to take more funds and incur a new interest charge for the additional funds used.
For this reason there is also a thought about protecting the inheritance. If the homeowner does not spend all the equity and the interest compounding is not going to reach the maximum home value, there is inheritance left for the beneficiaries.
The only disadvantage besides a potential loss of inheritance by using the funds, which occurs on roll up mortgages too, is the initial capital sum and cash reserve facility. Drawdown equity releases are for homeowners who do not need a significant amount of cash up front. Anyone who needs a lot of equity from their home will find it does not work to establish a cash reserve facility.
Likewise, there are some homeowners who only need a small sum of funds. They may not want to take the initial minimum sum which is usually £10,000. This initial sum if repaid early can carry charges. Early repayment charges usually occur within the first five to 10 years, but there are flexible plans changing even this.
It could mean that in five years the sum unused by the homeowner who needed £5,000 could pay part of the interest back. There are certainly options for those who need retirement help. Finding the right type of equity release is essential to obtaining the funds required, without incurring too much interest.View Drawdown Lifetime Mortgage Products Here