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What Is a drawdown reserve facility in Equity Release?

A drawdown reserve facility is a pre-agreed pot of money that you can call on as you need it.

When a Lifetime Mortgage is arranged it is normal practice to establish how much money is needed immediately, and how much might be needed for specific expenditure, or as an emergency fund, in the future. To minimise the impact of interest rolling up on the amount borrowed, it is better to put in place the drawdown facility and only borrow the extra money as it’s needed. This also prevents you having money on deposit which will affect benefit entitlement.

You will not be charged interest on the money held in reserve. However, there are some things you need to know about. Future drawdown will attract a rate of interest available at the time the money is taken. This might be more or less than the rate paid on the initial borrowing, but it isn’t possible to predict what it is going to be. Also, the funds drawn down from the reserve will have their own set of Early Repayment Charges which will extend the time before significant overpayments can be made.

You should discuss with your adviser whether the risks or having to pay a higher interest rate in future balances the cost of extra interest by borrowing a higher amount at the beginning.