Drawdown Equity Release

Drawdown equity release is an increasingly popular financial option for homeowners over the age of 55. It is a great way for homeowners to access the funds they need for retirement, home improvements, holidays, or to support their family. Proper Finance will take you through everything you need to know about drawdown equity release so you can see whether this is the right option for you.

What is Drawdown Equity Release?

Drawdown equity release is a popular retirement planning option for many people in the UK. It allows homeowners to release equity in their home without having to move out or downsize. 

With a drawdown equity release plan, you can take cash as and when you like, instead of receiving it all in one lump sum. You can use it to pay off your existing mortgage and other debts, or you can use the money for any purpose.

What Are the Two Types of Equity Release Products?

Lifetime mortgages are the most popular form of equity release. They allow you to access a portion of your home’s equity without having to make regular payments. You can decide how much to release from your home’s equity, and you will only pay back the loan plus interest when you die or move into long-term care.

Home reversion plans are another type of equity release product. With this type of plan, you sell a portion of your home to a provider in exchange for a lump sum of money or a regular income. You retain the right to live in your home for the remainder of your life, but the provider will receive a share of the proceeds when the property is sold.

How Much Can I Borrow Through an Equity Release Drawdown?

The amount you can borrow through an equity release drawdown will depend on factors such as your age, the value of your property, and the provider you are working with. Generally speaking, you can borrow up to 55% of the value of your home. However, this could be higher or lower depending on the specifics of your situation, with older people being able to borrow more. 

What Is the Repayment Process for Drawdown Equity Release?

There are no monthly repayments. The full loan and interest are both repaid by the sale of your home, which happens when you pass away or move into permanent care.

Is There a Minimum Age Requirement for Equity Release Drawdown?

Yes, in order to take out an equity release drawdown you usually must be at least 55 years of age. 

Are There Any Restrictions on How I Use the Money I Borrow Through Drawdown Equity Release?

There can be certain restrictions on how you can use money borrowed through drawdown equity release. Generally, the money must be used for purposes such as home improvements, paying off debt, funding long-term care costs, or purchasing an annuity. 

However, you can check with your provider before you take out a loan to make sure that the use of the funds is in accordance with their terms and conditions.

Are There Any Fees or Charges for Early Repayment of My Drawdown Equity Release?

It depends on the lender and the equity release product you have chosen. However, here are some costs that you should consider with drawdown equity release plans:

Interest Rates May Increase Over Time

Most drawdown equity release schemes are variable rate loans, meaning the interest rate can change at any time. This increases the cost of the loan and could result in a larger repayment amount. 

Negative Equity

If house prices decrease, the loan amount could exceed the value of the property. This means the borrower would be liable for the full amount of the loan, even if the property was sold for less than the loan amount. 

Repayment Terms

With a drawdown equity release, the loan amount is not repaid until the property is sold. This means the amount of interest owed could increase over time. 

Early Repayment Fees

If the borrower decides to repay the loan before the property is sold, there may be an early repayment fee to pay.

Inheritance

With drawdown equity release, the loan amount may reduce the amount of inheritance available to family members upon the death of the borrower.