When it comes to releasing the equity in your property, the drawdown lifetime mortgage option gives applicants the most flexibility. The drawdown lifetime mortgage option allows the borrower to have more control over when and how he or she wishes to withdraw tax-free cash.
This plan sets up a cash reserve facility and the borrower will then decide how much to initially withdraw from this reserve and the remaining cash will be kept until a later time, when the applicant wishes to withdraw the remainder.
Why are Drawdown Lifetime Mortgages so Popular?
One of the biggest reasons that drawdown lifetime mortgages are so popular is the flexibility offered to borrowers; more flexibility means more savings over time.
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When a borrower takes a lower initial amount from his or her reserve, it means he or she will be paying less interest upfront, making it more affordable to leave a larger amount of money in the reserve for the borrower’s inheritance and direct beneficiaries. Additionally, there will be more money in the reserve should the borrower need it in the future.
What are the Advantages of Drawdown Lifetime Mortgages?
The benefits of drawdown lifetime mortgages can be seen across the entire retirement spectrum. One example of this is when the drawdown mortgage proves to be beneficial for those individuals on means-tested benefits such as council tax benefit or pension credit.
When borrowers limit the cash they withdraw early in the process and stay within the beneficial levels as well as following the guidance of a knowledgeable advisor, they are able to not have any damaging effect on future benefit payments.
Some other advantages of the drawdown lifetime mortgage scheme are that the cash reserve facility allows the borrower to withdraw money whenever it is needed and will only pay interest on the money that is being taken out.
Also, the interest rate for this scheme is much lower than that of a traditional lifetime mortgage, meaning the applicant will save money on interest payments. Finally, the minimum withdrawal amount is only £2,000 with no admin charges and the borrower owns 100 percent of the property.
What are the Disadvantages of a Drawdown Lifetime Mortgage?
Like all equity release schemes, although it may seem like a perfect fit, there are always some disadvantages that individuals should be aware of before moving forward with this type of mortgage.
First, the reserve fund associated with this scheme may only be available to the borrower for a certain number of years and, should hard economic times hit, the financial lender does have a right to withdraw money from this reserve. Once the money within the reserve has been used, the borrower will need to reapply.
Another stark disadvantage of a drawdown lifetime mortgage is that, although the interest is only changed on the money that is withdrawn, that interest rate is not set and will vary depending on the market.
It is also important to note there is a minimum withdraw amount set with the cash reserve facility; there may also be a cap on the amount of money that the cash reserve facility can hold. It is imperative to take all of these disadvantages into consideration before making a final decision.
Drawdown lifetime mortgages have a number of advantages for borrowers and offer them a great amount of flexibility for when and how much money they withdraw from their cash reserve facility.
Although this may seem like a great option, it is always important to discuss this decision with a partner and affected family members before applying as well as seeking the advice of a knowledgeable equity advisor to make sure this particular scheme will match your lifestyle needs and budget.