Retirement Interest Only (RIO) Mortgages

Retirement interest-only (RIO) mortgage is a loan, secured on your home, designed for those over 50.  Retirement interest-only mortgages are available to both working and retired clients.

The money is tax free and can be spent however you like.  Usually, the maximum you’ll be able to borrow up to 75% of the value of your home.  Retirement interest only mortgages are available on your main residence only, you’ll need a regular buy to let mortgage for investment properties.

Unlike traditional interest-only loans, retirement interest-only mortgages have no fixed term and are intended to be repaid through the sale of the property, typically when the borrower passes away or moves into long-term care.

The borrower makes monthly interest-only payments on the amount borrowed thus keeping the amount the same throughout the mortgage.  Also, the interest rate is fixed for the lifetime of the mortgage, so you’ll know exactly how much you are paying per month to budget.

Retirement interest-only mortgages are available in both sole and joint names.  As part of the application process, like a traditional mortgage, your current and future pension income will be considered to ensure that the mortgage is affordable.

If the retirement interest-only mortgage is in joint names, the affordability assessment will be based on the income of the lower earner. 

There are lots of reasons why we would recommend a retirement interest only mortgage product to a customer, here is a list of the top 10:

1. To repay an existing mortgage that is ending soon.
2. Repaying debts.
3. Reduce your outgoings in and approaching retirement.
4. Supplement pension income.
5. Home and garden improvements.
6. Divorce settlements.
7. Move home.
8. Gifts to family members.
9. Large purchase such as a car or boat.
10. Estate planning

Nowadays, there is a lot of flexibility in the later-life mortgage space along with some brilliant products designed to help older clients with their purchase or remortgage needs.

If you’re wanting to explore your retirement mortgage options, it’s always best to get advice as the market is very specialist and complex.

There are a growing number of lenders that provide later life lending and retirement interest-only mortgage products so it’s important that we shop around to recommend the best deal along with features that are right for you.

Later life lending products include regular mortgages until the age of 80 and beyond, retirement interest-only mortgages, and equity release mortgage options.

It’s always best to ensure that you’re using an independent mortgage broker, like us, that will search the full range of later life lending solutions that are available, saving you both time and money.  

Retirement interest-only mortgages work very similar to regular interest-only mortgages, just without an end date.  

You can usually borrow up to 75% of the value of your home and make interest payments per month.  Your interest rate is usually fixed from the outset, so you’ll know exactly how much your monthly payments are going to be for life.  

A retirement interest-only mortgage can be in both joint and sole names. 

There are lots of types of retirement mortgage available, you can read more about mortgages for the over 50’s, mortgages for the over 60’s and retirement mortgage options.  

Nowadays, there are lots of choice when it comes to retirement mortgages. Options such as a regular mortgage until age 80 or 85, a retirement interest-only mortgage, regular interest-only or equity release in the form of a lifetime mortgage or home reversion plan are available.  

It’s important to seek professional later life mortgage advice so your advisor can recommend the best product to meet your individual situation.  

To be eligible for a retirement interest only mortgage, you must be over 50 and own your own home or want to buy one.  A retirement interest-only mortgage can only be taken out on your main residence only and not an investment property.  
 
You will also need to provide evidence of your current and future income to show that you can afford the monthly interest-only payments on the loan. 

The amount you can borrow on a retirement mortgage will depend on your age and which type of mortgage type we’ve recommended so it varies significantly.  

With a retirement interest-only mortgage the amount you can borrow is usually a maximum of 75% of the property value providing you meet your lenders criteria surrounding affordability.  

Yes, a retirement interest-only mortgage can be in both sole and joint names. If in joint names, the income assessment will be based on the lower earner to endure that they are able to meet the monthly interest payments on their own.  

Providing that all monthly payments are met, the second survivor will be able to stay in the home until they die, sell or go into long term care.   

Rates on retirement mortgages will be either the same as a traditional mortgage or slightly higher depending on which type of retirement mortgage is more suitable for you and whether you can afford to make any monthly payments.  

With most types of retirement mortgage, the rates are fixed for life or for an agreed period (e.g. 2, 5 or 10 years) meaning you’ll know exactly how much interest you’ll be paying, or not paying if you chose to roll it up.  

Years ago, retirement mortgages attracted a lot of bad press however, now, this market is ‘clean’ and regulated meaning there are some brilliant products now available to older borrowers.    

The only thing to be mindful of is that it’s always best to use an independent mortgage broker that can provide later life advice on the full range of products.  

The main benefit of a retirement interest only mortgage is that is provides a fantastic solution for older borrowers looking to purchase a new home or unlock tax free cash from their homes.  Previously, only an equity release mortgage product was available to older clients, nowadays, there’s been an influx of new lending products into the market allowing more choice.  

Another benefit of a retirement interest-only mortgage that they offer an older borrow a chance to keep their monthly payments to a minimum by only paying the interest.  The loan amount will stay the same throughout the mortgage unless any agreed overpayments are made.  

The later life lending market is a minefield and speaking to a trusted independent mortgage broker will prove invaluable.  We’ll recommend the best mortgage product for you based on your personal situation.  

One risk associated with a retirement interest only mortgage is that they can be difficult to get accepted for.  The lending criteria on a retirement interest only mortgage is strict and in-depth information is required to prove you meet the conditions.   

Lending criteria will be based on your current and future income and will be based on the lower earner if it’s a joint application.  The income figures will consider any employed income, self-employed income, pension income, investment income and your outgoings.  

It’ll also consider any future pension income, for example, if there is a spouse’s pension payable should one applicant die.  

If you’ve had a retirement interest-only mortgage for a while and you’re struggling to meet the monthly interest payments, there may be more suitable products available to you such as a lifetime mortgage, we’re able to help you explore these options if necessary.   

Another risk, of course, is that, like a ‘normal’ mortgage, you must keep up your monthly payments or your home will be at risk of repossession. 

Yes, it is possible to use a retirement interest only mortgage to buy a new property, but you will need to meet the mortgage lenders’ eligibility criteria and prove you can afford the monthly interest payments. 

A retirement interest-only mortgage is available for older customers looking to move home, buy a new property to live in or to capital raise via a remortgage.  

With a retirement interest-only mortgage, your credit history can have an impact, just like it would with a ‘normal’ mortgage. If you think you are going to run into financial difficulties which will affect your credit profile, it is important to speak to an experienced later life mortgage adviser as soon as possible. If you have already had credit problems but you have enough equity, we could look at a lifetime mortgage (equity release) with regular payment options as lifetime mortgage lenders are more flexible when it comes to credit history. 

In fact, one of the most popular reasons older clients contact us is for debt consolidation in retirement. Credit cards and personal loans can get expensive to repay on pension income and retirement-interest mortgages provide a much cheaper way to service these should you be stuck between a rock and a hard place simply making minimum payments.  

Whether you have a CCJ, a default, a debt management plan, missed payments or simply a low score it’s worth talking to us so we can explain your retirement mortgage options.  

There are various lenders offering retirement mortgage options now, each have different criteria relating to bad credit.  As trusted mortgage advisors, it’s part of our service to recommend the best one for you.  Each retirement mortgage product will have their own features and risks and it’s important that we go through these with you so that you understand.  

For life, there is no term like with a regular mortgage. 

The interest rate is agreed at the outset either for an initial period (e.g., 5 years) or for life, therefore you’ll know exactly how much your monthly payments will be.   

If in a sole name, a retirement interest-only mortgage will be repaid on death, sale of the property or going into long term care.  If it joint names, it’ll be repaid on the second death, sale of the property or the second applicant going into long term care should the monthly payments be maintained.  

If in the future your circumstances change and the monthly payments become unaffordable for one reason or another, there may be better more suitable retirement mortgage solutions available that we could recommend for you. Part of the discussion with your advisor will be around the ‘what ifs’ which worry us all. If income after the death of one partner is a concern, we will look at the solutions with you as early as possible so that we can plan for the future. 

While it is possible to pay off a retirement interest only mortgage early, there may be fees or penalties associated with doing so.

It is important to check the terms of the mortgage agreement before making any early repayments. 

Often, retirement interest-only mortgage products come with flexible options that allow you to make overpayments.  Our later life mortgage advisor will run through these options with you if you’re looking to do this.  

Taking out any kind of mortgage is not a short-term solution so if you are looking for shorter term borrowing, we may have better lending solutions for you such as a bridging loan.  

Very similar to with a traditional mortgage! You’ll start by having a free, no-obligation talk with our later life mortgage broker team.   We’ll then get to know and learn what you are looking to achieve with a mortgage.  

You can book this online via our website or by calling up and speaking to one of our employees. 

Our retirement mortgage advice team will answer all your questions, explain your options, and recommend the most suitable retirement mortgage product for you from the full range available in the UK.  

Documents such as ID, bank statements and details of your property will be requested as part of the process.   

Yes, you can leave an inheritance if you have a retirement mortgage, although the value of your estate will be smaller.  

In the event of the borrower’s death or second death if a joint mortgage, the loan will need to be repaid. 

As monthly interest-payments have been paid, the amount borrowed will be the amount (approximately excluding any fees etc) that will need repaying. 

Usually, the mortgage is repaid from the sale of the mortgaged property, but it doesn’t have to be. If there are investments, buy to let properties, insurance policies, new mortgages, or family money in the background these funds can be used instead.    

In our experience, the mortgage lender will be patient and understanding and allow your family time to clear and sell the property, this can be up to 2 years.  The best thing to do would be for your family to have regular contact with the mortgage provider and keep them in the loop as to what is happening.  They might also allow the interest to be rolled up for a short period of time whilst the property sells.  

There are lots of options when it comes to retirement mortgages.  We can help with all of these.  

Alternatives to retirement mortgages include unsecured lending such as personal loans and credit cards, borrowing money from family and any grants and charity funding that it available.   

If your income is not enough for a retirement interest only mortgage and you have plenty of equity in your property, it is worth considering a lifetime mortgage (equity release) which are all now available with the option of making voluntary payments to cover the interest or more – generally up to 10% per year of the amount you have borrowed.  

Whether or not you will qualify for the above will depend on various factors including your age, income, outgoings, credit score, how much money you need and what it is to be used for.  

The funds raised from a retirement mortgage can be used for any legal purpose. Popular reasons include home improvements, garden renovations, repaying an existing mortgage, clearing debts, tax planning, gifts to family, a large purchase, and lots more.  

Very much like a regular mortgage, your new lender will instruct a third-party company to determine an accurate valuation of your property.    

The third party will take into consideration recent local sold prices, your property type, build, and any home improvements you’ve made.  

Your lender will then have an accurate figure for mortgage purposes. 

Yes, you can get a retirement mortgage if you already have a mortgage on your property. A popular reason why customers contact us is that they are looking to repay an existing mortgage that is ending soon.   

If you are looking to keep your existing mortgage and raise funds via a second mortgage, a secured loan might work better for you.