Drawdown Schemes

Drawdown Schemes

Drawdown schemes are a welcome innovation to the equity release market & are now a very popular method of releasing equity.

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 means-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• Some reserve facilities may not be guaranteed & can be withdrawn by the lender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 may be restricted