As you get older, remortgaging your home can become more difficult. If you are over the age of 50 and looking to unlock some of the money you have built up in your home, a retirement interest-only mortgage may be an option.
A retirement interest-only mortgage, also known as an RIO, is a type of mortgage aimed at borrowers who are nearing retirement age and do not meet the criteria for standard mortgages set out by lenders. Essentially, you take a loan against your property’s value and rather than paying the actual loan amount, you repay the interest each month. Then, the capital loan amount will be paid off once your house is sold, either when you pass away or move into long-term care.
RIO mortgages are similar to Lifetime Mortgages, a type of Equity Release, but with a few important differences. The main difference is that with a Lifetime Mortgage you cannot lose your home through repossession if it remains your main property. With a RIO, you can be repossessed if you fail to keep up payments as with a standard residential mortgage. Another difference is that RIO’s require paying interest payments each month, whereas a Lifetime Mortgage has the option of compound interest, which means that interest builds on top of interest thereby increasing the full loan amount and has no monthly payments. You can also get RIO mortgages from a younger age (50 rather than 55).
The amount you can borrow depends on a number of factors. You will be subject to an affordability assessment to see whether you can realistically pay the interest each month, and lenders will also look at the loan-to-value ratio of the mortgage itself. This is a way of judging the risk of providing you with this mortgage, so if you have a high LTV ratio your repayments will be higher.
Yes, this type of mortgage is aimed at those over the age of 50, but you can get one much later in life as well. As long as the mortgage broker sees you are able to pay the required amount of interest each month, as well as a few other criteria, you should be eligible.
For younger people, an interest-only mortgage can be risky, but there are many reasons why a retirement interest-only mortgage may be attractive to older people. Firstly, there is no compound interest like there is with Equity Release, so the final loan amount to be repaid will not be more than you initially borrowed. As long as you can keep up with repayments, you’ll be able to stay in your home and avoid selling up to save money, and there is likely to be more left to pass down as inheritance. Of course, it is wise to look at the potential downsides as well: your home will be at risk if you cannot keep up with the payments, your home will need to be sold after you pass away or enter long-term care, and you must pass stringent affordability checks to be eligible.