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Drawdown lifetime mortgages

Like other types of equity release, drawdown lifetime mortgages are a way that homeowners can access some amount of cash, taken against the value of their home. However, as compared to other types of equity release, drawdown lifetime mortgages enable a little bit more freedom for the homeowner in terms of how much cash they can borrow against their home, and how much it might cost them in the long-run.

They do so by granting the homeowner a greater amount of flexibility in the withdrawing of funds from the lender.

What Is a Drawdown Lifetime Mortgage?

A drawdown lifetime mortgage is a specific type of equity release plan that was created to give homeowners more leniency as far as the number of funds they borrow from the lender. For homeowners who are unsure about how much cash they might be needing to borrow off of the value of their home, drawdown lifetime mortgages enable them to make that decision in real-time, as compared to having to decide at the initial stages of the mortgage.

In effect, drawdown lifetime mortgages create a reserve fund from the value of your home that you can take from only if you need to.

1. Take Out the Cash You Need, Not the Cash You Don’t

The unique thing about drawdown lifetime mortgages is that they enable the homeowner to take out more cash if they need to, and less cash if they don’t. This is in contrast to other types of equity release where the amount of cash withdrawn from the value of the home is essentially predetermined, with a fixed interest rate.

The benefit of this is that homeowners have the ability to not take out more funds than they need at a time. In doing so, it saves the homeowner from paying accrued interest on funds that they aren’t even going to be putting to any good use.

2. Prevents Unnecessary Interest from Accruing

With traditional mortgages, a homeowner who borrows more money than they end up needing will likely be forced to let all those extra funds sitting in the bank. At the bank, they may accrue a minor amount of positive interest, but that interest will be nothing compared to the amount of negative interest they are accruing in debt to the lender.

This type of situation means that those who take out mortgages oftentimes are haemorrhaging money in ways that could easily be avoided by simply choosing a drawdown lifetime mortgage. Given that those who are taking out a mortgage on their home generally don’t have a surplus of cash to throw down the drain, this can be a pretty big issue.

How Does a Drawdown Lifetime Mortgage Work?

Of course, as with most other forms of equity release, a drawdown lifetime mortgage will require you to be both a homeowner and over the age of 55 in order to take it out. You don’t necessarily have to own your home outright, but you will likely be forced to pay off any remaining amount on your previous mortgage(s) in order to take out a new one.

1. You Retain a Greater Value of Your Home

You will be able to receive a lump sum based on some portion of the value of your home. Typically, with drawdown lifetime mortgages, the initial sum is a minor value in relation to the overall value of your home. f you take out a loan of 20% of the value of your home, you still outright retain 80% of the value of your home just in case you need to borrow any more funds later. As well, this allows you to maintain a firmer control over your own property as an asset in comparison to other types of equity release.

2. The Valuation of Your Property

The value of your property will be determined by an inspector hired at the behest of the lender, and they will look at the overall condition of your property and compare it’s value to like properties in the area. Another factor that always comes into play when calculating the amount one stands to receive from any type of equity release is the projected amount of time that the homeowner will remain in the home.

While equity release typically sees the homeowner remain in the house until either death or hospitalization, there are always cases in which the homeowner might move out earlier. The shorter amount of time you plan on staying in your home, the greater amount of equity you can typically release from your home.

3. Decide How Much Money You Need

Once the value of your home is determined, the amount that you stand to borrow from the lender will be presented, and you can make your choice as to how much of that money you would like to withdraw. The remaining amount, then, will stay in a “reserve” with the lender, and will not garner any interest until it is withdrawn, if ever.

This allows an unprecedented amount of flexibility for homeowners that have made this one of the most popular forms of equity release for those who are unsure about their future.

As with most other types of equity release, the funds you release from the value of your home will not be taxed. Should you ever need more funds than the initial, or any subsequent, amount, they can be accessed without the need for an additional fee.

Contact Us for More Information

If you are curious about a drawdown lifetime mortgage, or any other type of equity release, we are here to help customers find out what type of mortgage is right for them. There are many options available to homeowners, and they all offer uniques advantages and disadvantages in relation to the competition.

For those who are unsure about how much money they will need in the future and don’t want to end up spending more on interest than they would otherwise have to, drawdown lifetime mortgages provide an easy and flexible option that keeps you in charge of your property.

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