Retirement Interest Only (RIO) Mortgages can be a good alternative to Equity Release. Here you can see the advantages and disadvantages of RIO Mortgages.
If you have watched daytime television, then you will be familiar with the flurry of Equity Release adverts. A Retirement Interest Only Mortgage is an option that should be explored before taking out any Equity Release Mortgage. What are the advantages of a Retirement Interest Only Mortgage?
1- No upper age limit and no end date. A RIO Mortgage continues until you sell or move out of your property. Unlike a traditional mortgage, you will not have to repay your mortgage balance until you sell your property, die or go into long term care. This makes it an ideal product for repaying an interest only mortgage that has come to the end of its term.
2- Your debt will not increase like an Equity Release product can. You pay your interest every month, just like a traditional interest only mortgage. This will ensure that you leave more money behind for loved ones and beneficiaries than you may with an Equity release product.
3- You can take a shorter term deal, such as a 2 year fixed rate RIO Mortgage. This gives you more flexibility if your circumstances change over the shorter term.
4- Set up and legal costs can be lower than an Equity release product.
What are the disadvantages of a Retirement Interest Only Mortgage?
1- Unlike Equity Release, you do need to have a sufficient retirement income to get the mortgage. The lender will carry out a full affordability assessment. Your Mortgage Adviser will make sure that you meet affordability requirements before recommending a RIO product to you.
2 – You do have to make your monthly mortgage payments. You can’t skip a payment or roll your interest payments up like you can with Equity Release.
3- If you get behind with your payments your home may be repossessed. Just like a standard mortgage, the lender will take the property away from you if you don’t pay the mortgage.
4- Most RIO Fixed Rate deals run for 2 to 5 years. This means that you will need to review your mortgage every few years and look for a new deal. If interest rates increase, then your mortgage payment may increase over the longer term. Unlike Equity Release products which provide a fixed rate for life. You can always switch to an Equity Release product later on if affordability becomes a problem.
How does a Retirement Interest Only Mortgage work?
It works just like a standard interest only mortgage but with no fixed end date. The lender releases the money to you. You pay your interest payment every month. You pay the money back when you sell your property.
Can I get a RIO Mortgage in retirement?
You must be over 50 years old. You need a Pension income to support your monthly payments. Your credit status will be checked by the lender. Adverse credit history including missed payments and defaults may stop you from getting a RIO mortgage. If you do not qualify for a RIO mortgage, then Equity release may be the best solution for you.
How much can I borrow?
This depends on 2 key factors. The value of your property and your retirement income. The maximum available is 60% of your property value with most lenders. The higher your income the more the lender will give you. Ask your Mortgage Adviser for a borrowing calculation.
What can I use a RIO Mortgage for?
The most popular reasons for taking out a RIO mortgage are:
1- To repay an interest only mortgage that is coming to the end of its term.
2- To carry out home improvements and essential repairs
3- To carry out adjustments to the home, making it more comfortable and accessible as mobility needs change
4- Pay for private care costs/home help in retirement
5- To help family members to purchase a property by gifting a deposit
6- Day to day living costs
7- Lifestyle enjoyment including holidays, a one-off purchase or a special occasion
How do I find out more about mortgages in retirement and chat with a specialist adviser?
Simply start here and your later life specialist will be in touch with you:
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