A Retirement Interest Only Mortgage (RIO) could suit you if you are over 55 and think you may struggle to pay off an existing mortgage or get a standard residential one.
Getting a mortgage when you’re older is possible, and some good options exist for later-life borrowers. Lenders recognise that times have changed – we live our lives differently to years ago when we would typically take out a mortgage for 25 years to be cleared in our fifties. Life can change, and many of us are happy to start our lives again with a new partner or move on with our lives in other ways.
Our property needs can change, too, and we don’t always want to stay in the same house for years. All of these changes can affect our borrowing needs. It’s not uncommon to apply for a new mortgage in your fifties or sixties.
If you need a mortgage as a later-life borrower, various options, including standard mortgage loans such as fixed-term or variable-rate mortgages, are available. If you are moving house, a standard mortgage with a defined term may suit you. However, a retirement interest-only mortgage may be a good option if you are already a homeowner.
What is a retirement interest-only mortgage?
A retirement interest-only mortgage (RIO) is a mortgage devised for later-life homeowners, usually aged 55 or over. It is similar to an interest-only mortgage – you have a mortgage on your home and only pay off the interest on the loan each month. You don’t pay off any of the capital. However, some RIOs will allow you to pay off some of the capital if you can afford to do so.
Most RIO mortgages don’t usually have a fixed term – instead, the loan is paid off when you die, move into long-term care or sell your property.
Unlike a RIO, an interest-only mortgage will have a fixed term. At the end of that term, you will be expected to repay the loan in full. This means you’ll need a clear strategy or plan in place for how you will pay it off.
The RIO market has grown over the last few years, with more lenders (including high street banks and building societies) providing new products, therefore offering more choices to borrowers. Interest rates on RIOs also fell slightly between 2019 and 2020.
Why have a RIO?
A retirement interest-only mortgage could suit you if you are coming to the end of an interest-only mortgage term and are unable to clear the loan. You can talk to a reputable mortgage broker to discuss your options.
What are the benefits of having one?
You only have to pay off the interest on the mortgage each month, which means the monthly payments will be lower than if you were paying off some of the interest and the capital. With a RIO, you are more likely to have some money to pass on to your children for an inheritance when you die than if you were to take out an equity release plan. The mortgage loan term is not fixed – remember, the loan is usually only payable when you die or move into long-term care.
What’s the difference between a RIO and an equity release scheme?
Equity release plans are devised for those who typically have equity in their property but, in many cases, a limited amount of cash at their disposal. You borrow a portion of the value of your property but don’t have to make regular monthly payments. If you take out an equity release plan, you can withdraw a single lump sum or a regular income from your property’s equity (value). You don’t have to draw all of the amounts you borrow in one go and can draw one amount initially and then regular amounts after that. Interest rolls up on equity release plans, but you only pay interest on the amounts you draw. With equity release, your property will have less equity to pass on to loved ones when you die compared to a RIO mortgage.
An equity release plan will be paid off when you die or sell your home to move into long-term care, and the interest will need to be repaid at this time, too. Equity release may be an option if you are looking to boost your retirement income. A RIO works more like a normal mortgage – you’re paying off the interest each month rather than it accumulating as with equity release.
What are the criteria for having a RIO?
Retirement interest-only mortgages are aimed at older borrowers, such as those over 55 and later-life borrowers. You only have to prove that you can afford the monthly interest payments.
If you are nearing or at retirement age and still have a mortgage to repay, a RIO product could be ideal as it will take away the worry of having to make large mortgage payments.
Before taking out a RIO or equity release, seeking advice from a later-life borrowing specialist is important. We can help with RIO or equity release, so feel free to contact us for more details.