Retirement Interest Only
Retirement interest only mortgages (RIOs) are a relatively new set of mortgage products designed to help older borrowers who may struggle to get a standard residential mortgage borrow against their property. A RIO mortgage is similar to a standard interest-only mortgage, with two main differences:
The mortgage loan is usually only paid off when you die, move into long term care or sell the house. The mortgage loan is usually only paid off when you die, move into long term care or sell the house. Retirement interest-only mortgages are generally aimed at older borrowers – although there is no minimum age limit, they marketed to the over 55s, over 60s and pensioners who might find them easier to qualify for than a typical interest-only mortgage
In this way, they’re similar to types of equity release schemes like a lifetime mortgage, where you pay-off the original capital and possibly any interest when you die or move into long-term residential care.
There are two parts to paying off a retirement interest-only mortgage. The interest and the outstanding capital.
During the term of the mortgage, you will make monthly repayments to cover the cost of the interest on your loan.
The outstanding capital you still owe will be paid off when the house is sold, you die, or when you move into long-term care. This means that theoretically you should be more likely to have something to pass on as an inheritance, or have the ability to pay for long-term care should you need to.
There are pro’s and cons to be aware of when considering this mortgage
No need to demonstrate a suitable plan for repaying the mortgage.
More likely to have something to pass on as inheritance should you die.
Interest will not be rolled up – which is when interest builds and builds – like with equity release.
Avoid having to downsize to a smaller property.
The loan term is not fixed.
Generally cheaper when compared to most Lifetime Mortgages – better rates.
You can unlock some of the equity in your home to pay off outstanding debt.
You will need to pass the mortgage affordability checks to prove you can afford the interest only repayments.
Your home will be sold off to repay the loan when you die, enter long-term care or sell your home.
Your home is at risk if you do not keep up the repayments.
The amount you can borrow is based on your retirement income and your loan to value ratio.
Retirement interest-only mortgages can be offered by traditional mortgage lenders, including high street banks and building societies.
Are you considering remortgaging a retirement interest-only mortgage? Well, you will be pleased to hear it is possible but, you may have to undergo another affordability assessment, if switching lenders or looking to increase the size of your mortgage borrow, which could be difficult for some people.
If you’re looking for a retirement interest only mortgage, and want to find out more about them, then we can connect you with qualified Advisors. We do not offer these products.