Retirement interest-only mortgages

Sometimes getting a mortgage later in life can be difficult, but it doesn’t have to be.

Retirement interest-only mortgages can offer a valuable lifeline to mature borrowers as well as being a cheaper alternative to equity release plans. At Bower, our experienced financial experts are on hand to guide and advise homeowners over the age of 55, in order to help them find the very best mortgage for their own unique needs and circumstances.

What Is A Retirement Interest-Only Mortgage?

Retirement interest-only mortgages, also known as RIO’s, have been specifically designed for older borrowers over the age of 55, who due to age limits, may struggle to get a mainstream mortgage.

They are similar to conventional interest-only mortgages where you are only required to maintain the interest payments on the loan on a monthly basis. As long as the payments are maintained the balance will remain the same and you do not have to repay the capital until you pass away or go into long-term care at which point the house is sold and the proceeds from the sale are used to repay the lender. However, some retirement interest-only mortgages carry a fixed term like with regular mortgages, meaning the loan must be repaid when you reach a certain age or after a set number of years.

Another difference between standard mortgages and ROI mortgages is that you aren’t subject to the same affordability tests so you will only be required to prove that you can afford the interest repayments and not for the capital you’ve borrowed.

Who Are Retirement Interest-Only Mortgages Suitable For?

The clue is in the name; retirement interest-only mortgages are intended for older borrowers that are age 55 and above. Because they are interest-only and require lower monthly repayments than a standard repayment mortgage, so they are well suited to people who are retired but with a regular secure income such as a private or defined benefit pension scheme.

Is a retirement interest-only mortgage right for me?

• You need to be aged 55 or over
• You will need to be currently living in or buying your own home in England, Wales or mainland Scotland.
• You must be able to make the interest payments each month.
• The minimum loan amount is £10,000 and so your property must be worth at least £100,000 or more.
• You are applying for the mortgage on your main residence.
• You receive either a private, state or workplace pension or other guaranteed income.

How Much Could I Borrow?

The amount that you could potentially borrow with a retirement interest-only mortgage will vary from lender to lender. In general, with both standard and ROI mortgages, you can borrow less than those that call for you to repay the capital. This could mean you are able to borrow around 50% of the value of the property interest-only, but if you were to repay the capital too you could borrow much more.

Is It Possible To Switch To A Retirement Interest-Only Mortgage?

Yes. If you currently have a repayment or interest-only mortgage and wish to switch to a retirement interest-only mortgage, then it can be used to repay the existing loan. However, you may need to be eligible for new affordability assessments with the lender offering the retirement interest-only mortgage.

We would always recommend working out how much you can afford and check to see if there are any penalties and fees involved when moving away from your current lender. Be sure to seek professional advice from a reputable expert such as at Bower, before making the switch as they will be best qualified to find out if there are any potential pitfalls and if the deal will actually save you money.

What Are The Advantages and Disadvantages?

As with everything, there are potential positives and negatives when it comes to retirement interest-only mortgages.

Advantages

• With this type of mortgage, you could borrow more than you would be able to with lifetime mortgage, especially if you are between 55 and 65 years of age.
• This type of mortgage removes the worry of repaying the capital sum owed in retirement.
• There is no need to downsize and move home in order to release cash.
• You can stay in your home as long as you wish and keep up repayments. It will only be sold once you no longer require it, move into long-term care or pass away.
• The interest-only monthly payments will usually be lower than those on a repayment mortgage.
• Retirement interest-only mortgage rates can be lower than those for lifetime mortgages.
• The loan term is not fixed which will mean that you don’t have to repay the capital until you no longer need the home.
• There is no ‘interest roll-up’ like there tends to be with equity release plans which means that it won’t erode the remaining capital left for your family’s inheritance.
• If you want to then the mortgage can be repaid after any discounting period which offers greater flexibility.

Disadvantages

• Your home could be at risk of being repossessed if you do not keep up with repayments.
• When you no longer need the home, whether that is after going into long-term care or when you pass away, the property is sold to repay the capital.
• In order to ensure that you can make the monthly repayments you will need to pass affordability checks.
• The amount you can borrow will depend on your retirement income or guaranteed earnings such as a pension as well as the value of your home.

Professional Advice You Can Trust

A retirement interest-only mortgage can be a great option for some homeowners, however, big decisions such as those to do with your mortgage should not be taken lightly and it is always best to seek help from a reliable, knowledgeable finance advisor such as at Bower.

At Bower, our team of specialists have the experience and expertise needed to provide you with the vital, impartial advice you need to ensure that you are getting the very best deal. Our mortgage advisors will work with you from the beginning of the process, answering any questions you have and talking through all of your available options before helping to match you with the right lender for your personal circumstances.

If you are interested in a retirement interest-only mortgage and would like to find out more then please don’t hesitate to contact us or call free on 0800 411 8668 and one of our friendly team will be happy to help.