29 Wood Street, Stratford-upon-Avon, CV37 6JG

Equity Release Council

Retirement interest-only mortgages (RIO)

Getting a mortgage later in life can often be difficult, but it doesn't need to be. Which is why we are able to help those over 55 obtain a mortgage which suits their needs and circumstances.

What exactly is a retirement interest-only mortgage?

A retirement interest-only mortgage or RIO is similar to a conventional interest-only mortgage where you are only required to maintain the interest payments on the loan on a monthly basis. As long as the payments are maintained the balance will remain the same.

With most RIO mortgages, you are only required to repay the loan if you sell your property, move into long term care or die. Although some retirement interest-only mortgages carry a fixed term like with regular mortgages, meaning the loan must be repaid when you reach a certain age or after a set number of years.

RIOs have been specifically designed for people who are age of 55 and over.



What you need to know about RIO Mortgages

  • Borrowing is based on income - You will need to pass the lenders mortgage affordability checks to prove the lowest earner can afford the interest only repayments
  • RIO mortgages are only available for standard ownership. It is not an option for things like shared ownership or Right to Buy.
  • With a RIO mortgage you can overpay by up to 10% of the total amount of the loan each year without incurring an Early Repayment Charge.
  • RIO mortgages are not available if you live on the Isle of Man, Scilly Isles or Channel Islands.



Advantages and disadvantages of a retirement interest-only mortgage
compared to a Lifetime Mortgage

Advantages

  • There is the potential to borrow more than a lifetime mortgage especially when you are between 55 and 65
  • Interest-only monthly payments can be lower than with a repayment mortgage
  • The interest rates can be lower than that of a lifetime mortgage
  • The inheritance you leave is likely to be higher than if you went with an equity release plan where there are no monthly payments and the interest is rolled up
  • The mortgage can be repaid after any discounting period which can give greater flexibility

Disadvantages

  • Your home is at risk of being repossessed if you do not keep up with your monthly payments
  • You will not repay the mortgage. The mortgage is repaid when the property is sold, either though downsizing or the last surviving applicant leaving the property
  • You need to make monthly repayments which can change depending on the bank rate of England and/or the mortgage lenders own criteria
  • You will still need to pass affordability checks, to make sure the lowest earner can afford the monthly interest payments and maintain the property
  • The amount you are allowed to borrow depends on your guaranteed earnings such as a pension
  • They do not offer a draw down facility