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Retirement interest-only (RIO) mortgages

There are currently limited options for older people wanting to continue their mortgages into retirement. While many lenders have relaxed their upper age limits for residential mortgages, there are still many restrictions.

For instance, you must be able to prove that you can afford to make monthly mortgage repayments in retirement. This means being able to pass the lender's credit, income and ‘affordability’ checks.

Proving income in retirement can be difficult and this is where barriers to retirement lending arise. P60’s, state pension letters, projections, SA302’s, investment and pensions statements are commonplace requirements for retirement lending.

In response to the limited borrowing opportunities for older homeowners, the financial services regulator – the Financial Conduct Authority (FCA) has now relaxed it rules allowing mortgages to be repaid when the last homeowner dies or goes into long-term care. (Which is the same as for equity release plans.)

How does a RIO mortgage work?

In March 2018, retirement interest-only mortgages were authorised by the FCA. RIO's have now become the fourth type of later life mortgage available to homeowners over the age of 50.

These are similar to standard interest-only mortgages where you repay the interest accruing on the loan monthly and providing repayments are maintained the balance will remain the same throughout.

The main difference between a RIO and retirement mortgage is that a RIO mortgage has no fixed term and only needs repaying upon death or moving into long term care.

Advantages of retirement interest-only mortgages

  • Interest rates can be lower than lifetime mortgages – the most popular type of equity release plan.
  • You don’t require financial advice (although it is recommended).
  • You can potentially borrow more than a lifetime mortgage.
  • The mortgage can be repaid early (though there may be associated early repayment charges).
  • Your inheritance is likely to be greater than with an equity release plan.
  • Ability to downsize or move home (as with a lifetime mortgage).

Disadvantages of retirement interest-only mortgages

  • If you have an existing mortgage, this must be repaid first (as with a lifetime mortgage).
  • You will need to pass the mortgage lenders income and affordability checks.
  • You will have to make monthly interest repayments.
  • Your interest rate may be fixed for the short term and could go up (or down) in the future.
  • The mortgage will have to be renewed at the end of the initial interest-rate period – possibly incurring new fees and charges associated with taking out a residential mortgage.
  • As with a lifetime mortgage, your home will eventually be sold to repay the lender, impacting the amount of inheritance you leave behind.

These are retirement mortgages for the 50+ consumer, based on income, credit rating and affordability. Your home may be repossessed if you do not keep up repayments on a RIO mortgage. To understand their features, benefits and risks, please contact Equity Release Supermarket for your personalised, key facts illustration. All RIO quotes can be tailored to your own circumstances and you are under no obligation to proceed.