Retirement Interest-Only Mortgages
Posted on 17th September 2019 at 11:21
‘Retirement Interest-Only Mortgage’ (RIO): Making the uncertain, certain
RIO’s are here to stay and that’s good news for potential borrowers
Although RIO mortgages have faced some backlash since they launched in July 2018, it’s a product that’s here to stay.
RIO mortgages are designed for older borrowers who may not be eligible for a traditional mortgage AND they do not want an Equity Release facility, at this point in time.
This is a positive because it gives you, as a potential borrower, more options and allows me, as an independent adviser, to truly support the ‘mature borrower’ market.
Who is RIO for?
Don’t let the ‘retirement’ part put you off - Retirement Interest-Only mortgages aren’t just for people who have given up the day-job. You are a potential RIO customer if you are aged 50+ years; you wish to make the most of the equity in your home and you are in a position to make interest-only payments each month: it could be the right option for you.
On the other hand, you may be faced with the end of a standard interest-only mortgage term, with no repayment option in place other than the apparent sale of your home. You, however, do not want such upheaval and RIO could be the lifeline that allows you to keep living in the familiar surroundings of your home.
Essentially, a Retirement Interest-Only mortgage is very similar to a standard interest-only mortgage, with two key differences:
The loan is usually only paid off when you die, move into long-term care or sell the house
You only have to prove you can afford the monthly interest repayments (pension, employed and self-employed income considered)
RIO’s provide certainty
Retirement has changed; life seems less certain for the current generation than the last. There is a need for clients to enjoy security in later life, and so, a new product has been introduced - the ‘Fixed-for-Life RIO’ which gives clients a fixed rate borrowing for the life of the mortgage.
The mortgage is available from the age of 50 years; it means clients could benefit from a fixed rate for 50 years or even more, safeguarding their retirement from interest rate rises, for life.
When would I recommend a RIO instead of an Equity Release?
The difference between a RIO and Equity Release is the fact you can pay off the interest each month. With Equity Release you don’t pay anything until the house is sold and the interest charged on the borrowing is rolled-up.
If you are in a position to pay a monthly amount, RIO would mean less interest being charged in the long term and would leave more value in your property, until the point that you may sell your home or even switch to an ‘Equity Release’ product.
The potential advantages and disadvantages of a Retirement Interest-Only mortgage, as stated on the government’s ‘Money Advice Service’ website are:
+ No need to demonstrate a suitable plan for repaying the mortgage
+ More likely to have something to pass on as inheritance
+ No problem of interest roll-up – when interest builds and builds - as with Equity Release
+ Avoid having to downsize to a smaller property
+ The loan term is not fixed
+ Generally cheaper when compared to most Lifetime Mortgages
+ You can unlock some of the equity in your home to pay off outstanding debt
− You will need to pass the mortgage affordability checks to prove you can afford the interest only repayments
− Your home will be sold off to repay the loan when you die, enter long-term care or sell your hom
− The amount you can borrow is based on your retirement income and your loan to value ratio
For more information on Retirement Interest-Only mortgages, please contact...
Nigel Osgood, Independent Mortgage Adviser
T: 01628 594433
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Tagged as: Retirement Interest Only Mortgages
Share this post: