Retirement interest-only mortgages ( A 5 point guide)

What are RIO mortgages? ( Retirement interest only mortgages)

As retirement draws closer we start to think of how to draw more money out of our assets. Retirement interest only mortgages are a good way to go about this.

For those already on interest only mortgages it might be very hard to renew or extend an interest only mortgage as the mortgage lender will be less welcoming to any future repayment plans you have in your retirement. You will need to have an iron clad repayment method such as an endowement policy or existing investments in real estate or businesses. However with retirement interest-only mortgages this is different.

In this brief guide we will look into retirement interest only mortgages( RIO mortgages), how you can prove to the lender that you can afford one and that you will be able to repay it.

What is a retirement interest-only mortgage (Rio mortgage)??

A retirement interest only mortgage (RIO mortgages) is very similar to a typical interest only mortgage. The difference here is that the lender will like to see how you will repay the mortgage but will not impose the same strict guidelines it imposes for a typical interest only mortgage.

This is because the repayment vehicles for a retirement interest-only mortgage (RIO mortgage) are quite standard.

Retirement mortgages (RIO mortgages) are not suitable for everyone, you should speak to an independent financial adviser who will advise you on how you can plan efficiently for this.

If your current mortgage is nearing the end of its term then you should definitely consider this option, if not you should look to manage your mortgage and remortgage when possible to ensure you are always on the best interest rate.

Unlike interest only mortgage a retirement interest only mortgage will usually be paid back:

  • When you die or move out of your home, or sell your house
  • By the mortgage lender selling the house
  • By using an endowment policy

Paying off a RIO mortgage (retirement interest-only mortgage) ✂?

  • You can either make interest and capital repayments(on an ad hoc basis)
  • You can make only interest repayments and the capital is repaid at the end of the mortgage term by selling the house or when you die or move into a care home.
  • You can make very little interest repayments and defer the remaining interest repayments to the end of the mortgage term.

Features of a RIO mortgage (retirement interest-only mortgage) ⬇⬆

  • Available to people who are retired or typically over 55 years old
  • No capital repayment throughout mortgage term
  • Only interest repayments during mortgage term or at the end
  • Capital is repaid upon death, house sale or moving into a care home
  • Similar to a lifetime mortgage or equity release scheme
  • Capital can be repaid at borrower discretion during mortgage term( this reduces the amount of interest owed as there is less capital for interest charges to be applied on)
  • Monthly payments are significantly lower than interest only mortgages if you chose to pay the interest at the end of the mortgage term

Advantages of a retirement interest-only mortgage (RIO Mortgage)?

  • Interest roll up is not a problem unlike with equity release schemes.
  • Whilst there is still a mortgage affordability check this is just for the interest repayments and less for the capital repayment.
  • Retirement interest-only mortgages (RIO mortgages) increase the chance that you have something to leave for your family as an inheritance because you don’t spend so much of your money on this mortgage.
  • You can still keep your house. There is no need to move to a smaller one
  • The mortgage term isn’t fixed
  • You can get equity out of your current home to live off

Disadvantages of a retirement interest-only mortgage (RIO mortgages)?

  • If you do not keep up the payments your home could be repossessed
  • You still need the prove to the lender that your mortgage affordability is suitable for this mortgage
  • The amount of money you can borrow is heavily based on what retirement income you get from your pension.
  • Your home will be sold once you die

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.