How does it work?
Drawdown Lifetime Mortgages have similar advantages and disadvantages to a regular lifetime mortgage, with additional issues that are unique to this kind of equity release scheme. The main difference is that you don't request the full sum of money available to you immediately. Instead, you decide on a maximum amount of equity you want to release, and 'draw down' the cash in stages as and when required.
ADVANTAGES
- You are in control of your money as you can release cash when it suits you, or you may be able to request a monthly income with no monthly payments to make
- You retain full ownership of your home
- You only pay interest on the amount of equity released from your home, so interest could accumulate more slowly than with a regular lifetime mortgage
- Drawdown Lifetime Mortgage plans may be available to younger people (aged 55+)
- Some Drawdown Lifetime Mortgage plans let you guarantee an inheritance for your family
DISADVANTAGES
- Interest rates are usually higher than on a standard lifetime mortgage
- Reduced amount available to leave as an inheritance
- Interest grows quickly as it is compounded
- You can't usually raise as much money through equity release with a drawdown lifetime mortgage as you could with a reversion plan, especially at younger ages
- If you want to increase the amount of equity released beyond the original amount agreed, you would normally have to apply for a further advance, which is not guaranteed
- If you repay the lifetime mortgage loan early, you may have to pay an early repayment charge
- Your tax position and certain state benefits may be affected
