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Drawdown Lifetime Mortgage

Lump Sum  Voluntary Repayment  Interest Only  Ill-Health

Drawdown lifetime mortgages are one of five options homeowners have under equity release loans. It is a different option than home reversion and may be more comfortable for homeowners. This is a mortgage, which means a repayment is required. There is also interest that will accrue on the loan. The difference between a traditional mortgage and lifetime mortgages is what makes it a viable option for retirees. To decide if you are comfortable with lifetime mortgages particularly drawdown options, it is important to understand what it is, the advantages and disadvantages.

Drawdown Option
The standard lifetime mortgage provides a one-time lump sum payment. However, this does not work for all homeowners. Some homeowners do not need a huge lump sum payment at the outset. They may need more funds later or it may turn out that the initial sum provided is enough. With a drawdown lifetime mortgage there is a smaller initial sum provided to the homeowner. A cash reserve facility is then set up with additional funds. These subsequent funds can be withdrawn as the homeowners require them.

Criteria
For drawdown lifetime mortgages there are providers willing to offer their loan to individuals who are 55 years of age. The youngest homeowner would need to meet this minimum age qualification. There is also a property value minimum. In recent years the minimum has increased to £70,000; however, it is in the homeowner’s best interest to compare providers to see if a lower value is allowed. The providers try to set up lifetime mortgages that fit industry needs, which is why criteria can vary both in property value and age minimums.

Repayment
Drawdown lifetime mortgages are like all lifetime mortgages where repayment is due at time of death or permanent move to long term care. There are certain products on the market that allow for early repayment after five years of taking out the loan. For most homeowners it is more comfortable for the repayment to occur at the end.

At time of repayment all accrued interest and all sums must be repaid. The initial sum will have a fixed interest rate that continues to accrue onto the loan until it is repaid. Typically, the interest rate is fixed at the current market rate when subsequent withdrawals are made. Only when new funds are withdrawn is interest charged on the new sum. Money kept in the cash reserve facility is not charged interest.

Advantages
Repayment is not made until death or move to long term care
An initial sum is offered in a smaller amount, with subsequent funds available as needed
Interest is only charged on funds used not the entire amount available

The disadvantage for some homeowners is the need to repay the loan plus interest. Since the home is usually sold to cover the loan and interest it does mean the loss of the family home. However, to have a comfortable retirement with enough cash to live on the drawdown lifetime mortgage can be a comfortable alternative to a one lump sum payment or home reversion when the home is sold in part or full.

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