The Drawdown Lifetime Mortgage is exactly the same as the ‘Lump-sum’ Lifetime Mortgage mentioned previously. In this case, the lender agrees to lend you a smaller ‘lump sum’ initially plus a reserve or drawdown facility which can be used at a later date, either all at once or in smaller slices.
The initial release and any subsequent drawdowns are charged at a fixed rate of interest although again, variable rates are also available should they be deemed more appropriate for you by your adviser. The funds taken from the draw-down facility will normally be fixed for life too and charged at the prevailing rate of interest offered by the lender at the time of the draw-down.
Again, some Equity Release schemes allow you to pay the monthly interest or voluntary ad hoc repayments up to 10% of the initial sum borrowed per year (and 10% of any additional borrowing from the reserve) without any penalty. If monthly interest repayments are employed by you it will have the effect of stopping compound interest being added to the loan and if you make voluntary or ad hoc lump sum repayments it will reduce the sum owed over time as the interest and part of the borrowed capital are being repaid.
As with the ‘Lump sum’ Lifetime mortgages on the death or entry into long-term care of the surviving homeowner, the house can then be sold to repay the loan. If your designated beneficiaries want to retain the property for their own use they can repay the loan from other more conventional means such as a conventional mortgage or loan. If sold, any surplus money then goes back into your estate to be shared by the beneficiaries as per the terms of your Will.