Drawdown Schemes

The value of your home, minus any outstanding mortgage you may owe, can be described as your 'equity'.


Drawdown schemes are a welcome innovation to the equity release market & are now the most popular method of releasing equity. Their prominence has also been assisted by the fact that interest rates have now become much more competitive.

 

Summary

Drawdown schemes are based on the principle of ‘roll-up’. However, rather than taking funds in a single withdrawal, drawdown enables you to take it in stages. 

This is achieved by the creation of a reserve facility, which holds additional funds for future use. 
In addition to the above features, drawdown plans have the following advantages/disadvantages: -

 

Advantages

  • Interest is only charged on the cash released.
  • Less interest will potentially be charged over the long term
  • Potentially more inheritance will be available for your beneficiaries
  • Ad-hoc withdrawals can be made, as & when funds are required
  • Can assist in mitigating against loss of mean-tested benefits 

Disadvantages

  • There may be a limitation on the size of the initial lump sum
  • Some reserve facilities may not be guaranteed & can be withdrawn by the lender
  • Future withdrawals can be at a higher interest rate than the original lump sum
  • The size of the reserve facility maybe restricted

This is an equity release plan. To understand the features and risks, ask for a personalised illustration.