Retirement Interest Only Lifetime Mortgage

You Should Know This About Retirement Interest-Only Mortgages

We're Here to Guide You Through the a to Z of a Retirement Interest-Only Mortgage Plan. Discover the Key to a Financially Successful Retirement!

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The Retirement Interest-Only Mortgages You Just Have to Know About

So, you’re retired, and thinking about taking out equity from your home as a form of a loan. Well, we’re guiding you through the fantastic mortgage option – the retirement interest-only mortgage plan.

In our article on Interest-Only Mortgages, we’ve covered what they entail and how they work. But here’s a quick refresher.

Explaining What Interest-Only Mortgages Are

Because some people are worried about interest rolling up, interest-only lifetime mortgages are excellent.

Simply put:

You make month-to-month interest payments. If you’re able to do this throughout the life of your mortgage, you won’t be charged additional interest when it ends. So, only the first amount of money you borrowed will be charged interest.

To Learn More: Interest-Only Mortgages

Retirement Interest-Only Mortgage

What’s a Retirement Interest-Only Mortgage (RIO)?

Retirement-interest only mortgages (or RIO for short) are relatively new when it comes to products precisely for older homeowners who want to borrow some cash. These retirement interest-only mortgages are there to help people struggling to get the standard mortgage for some reason.

Best of all:

RIO mortgages let you take out a loan against your house, and you only need to repay them the interest monthly, instead of the loan itself. Interestingly, RIOs are like standard interest-only mortgages in a way, but there are a few differences.

  • RIO mortgages mostly require you to repay your loan when the property sells, when you move into permanent care or when you die.
  • Some RIO mortgages have terms that are similar to a regular mortgage. So, you either need to repay them after a certain number of years or when you turn 90, for example.
  • With RIO mortgages, you only need to show that you can pay the interest, instead of proving you have a regular income as standard residential mortgages require.
  • Some RIO mortgages let you repay some cash plus interest. Meaning, your loan balance will decrease over time. This increases your inheritance for your heirs in return.
How Much Money Can I Borrow With An RIO Mortgage

How Much Money Can I Borrow With An RIO Mortgage?

It all depends on the provider you choose. Every provider has its limits on the loan amount against your property. If your loan is interest-only, you’re likely can borrow less money than when you repay the loan as well. 

Let’s look into that:

For example, you might be eligible for a 50% loan of your house’s value with an interest-only mortgage, or even more like 65% on a cash repayment mortgage.

Now:

There are other prerequisites as well:

  • minimum property value
  • minimum income
  • minimum loan size.

The loan amount you’re eligible for is determined by an affordability test which assesses your income and expenses. This is to ensure that you’ll be able to make the required repayment for the interest on your loan once you stop working. Your pension, savings or any other investments come under the microscope.

You might be asking yourself…

How Can You Show Proof Of Income?

Providers of these mortgages will check a few things about you and your life before they deem you eligible for a loan, I.e. before they can determine whether you can afford the repayments or not. Of course, every provider differs from the next.

Let me tell you something:

As an example, Halifax looks at your earned income until you turn 70 years old if you’re planning on working past state pension age, which is about 651. Some also require you to show them a pension forecast or an annuity statement not older than 18 months. Plus your state pension statement.

Now:

Let’s say that you’re already getting some sort of pension salary. You should also show the provider your most recent bank statement. Nationwide, as another example, looks at your age or how close to retirement you are. So, if you’re less than ten years from retiring, you should show the provider your salary currently and your estimated retirement salary.

They use the lower figure of those two salaries for affordability calculations. If you’re more than ten years away from retirement, they’ll use your current salary to calculate affordability. Simply show them your pension planning after your state pension runs out to safeguard your repayment eligibility.

RIO Mortgage Versus Equity Release

RIO Mortgage Versus Equity Release

Retirement interest-only mortgages are somewhat similar to equity release. Both of these give you access to your property’s value in cash. 

So listen to this:

When it comes to equity release, you take out a loan that’s a portion of your property’s value. Equity release doesn’t require monthly repayments. However, some providers allow you to do so. The loan is repaid when you die or move into permanent medical care, and your provider sells the property. These are usually lifetime mortgages.

Let me tell you something:

Lifetime mortgages don’t require monthly repayments, so your loan increases over time and can decrease the value you’ll get out of your property. But, don’t be alarmed. RIO2 mortgages don’t work like that.

Let’s look at this example.

Your property is valued at £200,000, and you need a 50% on that amount, or £100,000. After 15 years, your property might be valued at £300,000. As you go into long-term care, the provider will sell your property and repay the loan at an interest rate of 5%.

 Equity Release (5% Interest)RIO (5% Interest)
Monthly repayments£0£417
Total loan value after 15 years£211,370£100,000
The remainder after paying off the loan£88,630£200,000
The total amount of interest paid £75,055

Henceforth, when you look at the equity release column, there’ll be less equity in your property for your family as an inheritance after you’ve passed on compared to the RIO mortgage column.

Which Providers Offer This Plan to Older Borrowers

Which Providers Offer This Plan to Older Borrowers?

More and more mortgage providers are launching great deals that are specifically for older borrowers. Why? Providers have noticed that the traditional or standard mortgage plans don’t meet people’s need, especially when it comes to the older demographic2. So, we’ve put together a list of every deal out there for you to research further in your own time:

  • Bath Building Society
  • Beverley Building Society
  • Family Building Society
  • Hanley Economic
  • Building Society Hodge Lifetime
  • Ipswich Building Society
  • Leeds Building Society
  • Loughborough Building Society
  • Marsden Building Society Melton Building Society
  • Nationwide Building Society
  • Newbury Building Society
  • Nottingham Building Society
  • Post Office Money
  • Saffron Building Society
  • Scottish Building Society
  • Shawbrook Bank
  • Tipton & Coseley Building Society
  • Vernon Building Society

As you can see, your options are endless! But why would you, as an older person, need a mortgage?

Why Would I Need A Mortgage When I'm Older

Why Would I Need A Mortgage When I’m Older?

We’re all living longer thanks to medical development, and we’re also working for a long because of this. However, it can be very tricky to get a mortgage when you’re 60 and older. But, the list above shows that providers are taking more care when lending to older people. Here are several reasons why you, as an older borrower, might need a mortgage:

  • If you want to buy a retirement home which suits your needs better as you age.
  • If you’d like to top up your pension income.
  • If you want to help a family member out and give them some money.

And if that’s not reason enough, you could always remortgage your current interest-only mortgage and change to an RIO mortgage instead!

Let me tell you…

These great mortgage deals used to be extremely popular a while back, and before the credit crunch. You were then able to pay off your loan’s interest monthly before you repaid the full loan amount at the end of your mortgage. That being said, it often happened that borrowers had no plan for repaying that maximum loan amount. So they either had to sell up, or they had to downsize if they couldn’t remortgage.

Common Questions

What's A Retirement Interest-Only Mortgage?

How Much Can You Release Money With An RIO Mortgage?

How Do You Qualify for the Retirement Interest-Only Mortgage?

How Does A Retirement Interest-Only Mortgage Work?

In conclusion

So, if you’re retired and looking to borrow some much-needed cash, this is a great option for you! You make month-to-month interest payments. If you’re able to do this throughout the life of your mortgage, you won’t be charged additional interest when it ends. So, only the first amount of money you borrowed will be charged interest.

We understand that you will want some time to think over this and there is really no pressure to make any hasty decisions. We want you to feel secure in any financial decisions you make, Don’t hesitate to contact us with any further questions. We’d love to chat.

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Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

 

  1. The Relationship Between Reverse Mortgage Borrowing, Domain and Life Satisfaction.
    2018 Journals of Gerontology Series B-psychological Sciences and Social Sciences Volume: 75, Issue: 4, pp 869-878 DOI: 10.1093/GERONB/GBY096
    Cäzilia Loibl ,Donald R Haurin ,Julia K Brown ,Stephanie Moulton
    Ohio State University 123
  2. The Tradeoff between Mortgage Prepayments and Tax-Deferred Retirement Savings
    2007 Journal of Public Economics Volume: 91, Issue: 10, pp 2014-2040 DOI: 10.1016/J.JPUBECO.2007.03.011
    Gene Amromin 1,Jennifer Huang 2,Clemens Sialm 2
    1 Federal Reserve Bank of Chicago ,2 University of Texas at Austin 1234
  3. Should You Carry A Mortgage Into Retirement
    2009 Research Papers in Economics
    Anthony Webb 1
  4. Optimal annuitisation, housing and reverse mortgage in retirement in the presence of means-tested public pension
    2021 Social Science Research Network DOI: 10.2139/SSRN.2985830
    Johan Andreasson 1,2,Pavel V. Shevchenko 3
    1 University of Technology, Sydney ,2 Commonwealth Scientific and Industrial Research Organisation ,3 Macquarie University 1
  5. Reverse mortgage as a retirement planning tool: an evaluation
    2012 INFLIBNET
    Mahesh Kumar 1
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