Retirement Interest Only Lifetime Mortgage
As experts in our field, we discuss the following in this article:
Do retirement expenses keep you up at night? You aren’t alone!
Over 18 million people in the UK aren’t financially prepared for retirement.
Don’t let this get you flustered; a retirement interest-only mortgage might be a way for you to get one-up on retirement expenses.
We’ll help you find answers to:
- What’s a retirement interest-only mortgage?
- How does it work?
- How much could you borrow?
- What’re the costs?
- Where can I get a retirement interest-only mortgage?
Our financially astute team of economic fundis is always on the prowl for the latest market developments.
This way, we can bring you useful information on new and exciting products that could change your retirement from mediocre to extraordinary.
Let’s help you discover how!
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What’s a Retirement Interest-Only Mortgage (RIO) Mortgage?
A retirement interest-only mortgage (RIO) is a loan designed for later life lenders who’re over 55.
It’s a mortgage secured against your home, and you’re only liable for the interest payments.
The loan becomes repayable when you pass on or move into permanent care.
How Does a Retirement Interest-Only Mortgage Work?
A retirement interest-only mortgage works by your home, serving as collateral against your loan.
It’s similar to a lifetime mortgage, but the monthly interest payments are compulsory, or you can risk foreclosure.
The loan becomes payable either when you pass on or move into permanent care1, you’re only left with the capital portion to repay.
How Much Can I Borrow With a Retirement Interest-Only Mortgage?
The amount you can borrow with a retirement interest-only mortgage will depend on your age, your monthly retirement income, and your property value.
An affordability assessment will be done that’ll take into account your monthly expenses, your age, and your ability to earn an income.
That’ll help determine the interest rate you’ll be offered; a higher (LTV) will mean a less favourable interest rate.
As a retirement interest-only mortgage only requires the interest to be paid, you’ll be able to access a lower percentage of your home’s value, especially if you have minimal income.
What Are the Costs of a Retirement Interest-Only Mortgage?
The costs of a retirement interest-only mortgage are very similar to a traditional mortgage and range from anywhere between £1,000 and £3,000.
This covers charges such as valuation costs as well as arrangement and completion fees.
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How Will I Repay a Retirement Interest-Only Mortgage?
You’ll repay a retirement interest-only mortgage by using your property value.
This’ll only happen when your home is sold after you’ve passed away or entered long-term care.
However, the monthly interest is paid during your lifetime, using your retirement income as the source.
What Are the Advantages of an RIO Mortgage?
The advantages of an RIO mortgage are:
- Affordability – As the repayment value is lower than a traditional mortgage, it lessens the impact on your income.
- Value – A retirement interest-only mortgage doesn’t accrue interest, so it may work out to be cheaper in the long-term than other products such as a lifetime mortgage.
- Unlocking Value in Your Home – Using a retirement interest-only mortgage is a way to unlock the value in your home to fund your retirement needs.
- Planning an Inheritance – With a retirement interest-only mortgage, it’s far more likely that you’ll have value remaining in your property to leave to loved ones.
What Are the Disadvantages of an RIO Mortgage?
The disadvantages of an RIO mortgage are:
- Eligibility – You need to prove that you can meet the monthly interest repayments.
- Forfeiting Some of Your Home’s Value – Your home will have to be sold to repay the capital portion of the loan when you pass on or move into permanent care.
- Repossession – If you don’t keep up with your regular interest repayments, you risk your home being repossessed.
But how does a RIO mortgage compare to equity release? Let’s see:
|Equity Release (5% Interest)||RIO (5% Interest)|
|The total loan value after 15 years||£211,370||£100,000|
|The remainder after paying off the loan||£88,630||£200,000|
|Total amount of interest paid||£75,055|
Where Can I Get a Retirement Interest-Only Mortgage?
You can get a retirement interest-only mortgage from traditional mortgage lenders and banks or building societies2.
It’s pertinent to keep in mind that seeking financial advice is always best when making any significant financial commitment, despite it not being compulsory with an RIO.
What Happens to My Rio Mortgage if I Die?
If all the persons named on the RIO die, your home will be sold to settle the loan.
The same thing happens if the mortgage holders move into permanent care.
What Happens if I Want to Move House?
If you move, the simplest solution is to settle the outstanding loan from the sale proceeds.
You can also look into porting your retirement interest-only mortgage or taking out a new RIO on your new property.
What if I Can’t Afford the Interest on a Retirement Interest-Only Mortgage?
If you can’t afford the interest repayments on a retirement interest-only mortgage, you could run the risk of your home being repossessed or sold to cover costs.
You can look at options like moving to a lifetime mortgage.
Should I Choose a Retirement Interest-Only (RIO) Mortgage?
Whether or not you should choose a retirement interest-only mortgage depends on your financial situation and needs.
Your financial adviser would be in the best position to help you consider your options.
Can I Extend My Retirement Interest-Only Mortgage Past Retirement Age?
It’s possible to extend your retirement interest-only mortgage past retirement age as they are products specifically designed for retirees.
Is There an Age Limit on Retirement Interest-Only Mortgages?
There’s no age limit on retirement interest-only mortgages; you need to be over 55 to apply for one.
Could My Home Be Repossessed With a Retirement Interest-Only Mortgage?
Your home can be repossessed3 with a retirement interest-only mortgage if you don’t make your monthly interest repayments.
How Flexible Is a Retirement Interest-Only Mortgage?
A retirement interest-only mortgage is flexible in that you can repay some of the capital portion of the loan to reduce the amount you owe.
You can also move home if you choose and apply for further future loans if you want to.
A retirement interest-only mortgage is a flexible option available to retirees over 55.
With any financial decision, we recommend you speak to your financial adviser to see what your options are before making any decisions.
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