These equity release schemes which are known as the drawdown lifetime mortgage offer a higher degree of control over how you manage your finances into retirement.The mechanics of this flexible withdrawal plan allow the facilitation of a cash reserve which can be tapped into whenever the need arises.
Whereas a traditional lump sum equity release loan only offers a single capital amount, the drawdown lifetime mortgage uniquely provides a maximum cash reserve fund, calculated on the age of the youngest applicant & the value of the property being mortgaged. From the creation of this cash reserve, an initial cash withdrawal is taken which tends to be the largest amount withdrawn to cover one’s immediate needs.The remainder of the funds not utilised is then held by the lender until any further withdrawals are required by the borrower.
These ad-hoc future withdrawals can be taken as frequently, and in as larger amounts as necessary, subject to a minimum release which can be as little of £1,000 (Hodge Lifetime).
The major advantage of taking as little as required, and as often as one likes is due to the fact that money held in reserve in not charged any interest. The overall effect of these stepped drawdown lump sums is that they help avoid the equity release loan debt building up too fast.
This is in contrast to older equity release schemes, around prior to drawdown where applicants took larger than necessary lump sums, just to place into their bank account for ease of access in the future. This false economic practice meant that the interest being charged on the equity release, never would reach the heights of that achieved in any bank account.
We have already seen that a drawdown equity release loan has the added flexibility of taking a smaller initial lump sum, as the plan facilitates further withdrawals in the future.One such benefit of taking this course of action is for anyone receiving state benefits, particularly means tested benefits such as pension credit and/or Council Tax Support (also known as Council Tax Reduction)
As the drawdown plan has the ability to limit the initial cash withdrawal, this enables retirees on the aforementioned benefits, to keep within the limits imposed by the state & local authority. This in turn means drawdown equity release should have no detrimental effect on the ability to maintain maximum state benefit payments as long as rules are adhered to.
For example, the current maximum savings limit for pension credit is £10,000. For every £500 over this ceiling, there would be a £1pw reduction is the level of pension credit paid. Therefore, limiting the initial release to keep within this £10,000 limit (after costs & charges) will ensure that no loss of benefits is incurred. Once these initial funds begin dwindling, a further tranche of funds can be drawn down, thereby topping up the cash already on deposit, but again only taking enough to keep within the £10,000 limit.
As drawdown lifetime mortgage schemes offer similar features as the standard lifetime mortgage, the following advantages highlight the same, and more reasons why these drawdown equity release schemes are now the most popular choice for the over 55’s: –
Offering an impartial approach, Equity Release Loans would also like to point out both positive and negative aspects of drawdown equity release schemes. This includes adverse features which can provide any potential applicant a balanced approach to their decision making: –
To answer this question would rely on certain factors such as the age of the youngest homeowner, current property valuation and occasionally property type & location can be a factor. It is therefore best to speak to an independent lifetime mortgage adviser who can research the whole of the equity release market, using their independence to ascertain the best deal based on one’s circumstances. Another method, providing some confidentiality and personal researching is by personally using the plethora of online lifetime mortgage calculators. These calculators calculate the maximum lump sum possible, which upon further enquiry could help realise the maximum drawdown scheme & its features.
Should any questions remained unanswered on the subject of drawdown equity release loans then please call 0800 678 5159 where a qualified drawdown lifetime mortgage adviser is on hand to discuss any query, in confidence & with impartiality. Alternatively, we have a contact page whereby an online enquiry form cam be completed which will be passed to a qualified equity release adviser.
By following any of the links below will help provide key facts information on other areas around lifetime mortgage planning options: –
These are drawdown lifetime mortgages. To gain an understanding of their features and benefits call the team today on 0800 678 5159, where an adviser is looking to assist with your enquiry.