What is a Retirement Interest Only mortgage?
The Office of National Statistics has noted that the average life expectancy in the UK was last noted in 2018 as 87.6 years for males and 90.2 years* for females.
Funding later life is a hot topic based on these fairly high life expectancies, both for borrowers and lenders. If you’re nearing retirement age or perhaps you have already retired and have personal debt in the form of mortgages, credit cards and loans, assessing your later life borrowing options could be a way to find a little financial freedom.
What is a RIO mortgage?
Retirement Interest Only (RIO) can help people who have previously considered downsizing their property in order to pay off their mortgage debts - with RIO you could remortgage and stay in your home for longer.
As well as remortgaging to be able to repay mortgage debts, you could also raise money to take a trip of a lifetime, carry out home improvements, fund grandchildren’s university fees, weddings or first house deposits.
RIO means that you will be able to borrow a percentage of the value of your home as a cash lump sum and will be charged only on the interest of the loan. You have to prove you can afford the monthly interest repayments and go through additional credit history and checks. There is no set end date for the settlement of the loan, it is repaid by selling the house when you either decide to sell, go into long term care or pass away.
Who is RIO for?
To apply for a RIO mortgage, you currently must be over 55 with a reliable regular income that will allow you to make repayments now and in the future. Of course there are some pros and cons to this product and we’re here to explain them so that you can get an idea of whether a RIO mortgage could suit you and your needs.
Pros
1. The customer only pays the interest monthly which can make the monthly payments more affordable.
2. There is no maximum term for the loan.
3. There is not always a maximum age at application.
4. The mortgage doesn’t have to be repaid until the sale of the house, death or long term care.
5. Can be used for re-mortgage or to raise capital and release funds.
6. A range of income types can be considered.
7. Allows you to choose the lifestyle you want in retirement.
Cons
1. The mortgage debt remains outstanding.
2. Rates aren’t as competitive as standard mortgages.
3. Affordability is typically tested on both applicants and the lower earner used to ensure a surviving borrower can remain in the property.
4. The maximum loan to value is currently 65%.
This doesn’t sound like it’s for me
If you are not sure whether a RIO mortgage is for you, there are other options for older borrowers.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits.
*ONS Statistics on Life Expectancy
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