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.