Retirement interest-only mortgages are, as their name suggests, aimed at older borrowers, aged 55 and over. Here’s how they work.
RIO mortgages are part of the booming later life market, aimed at older borrowers who find themselves unable to clear their mortgage by their planned retirement date.
They enable borrowers to take out an interest-only mortgage in retirement, using the sale of their property to repay the debt.
Why take out an RIO mortgage?
These mortgages can be useful if you’ve got an interest-only mortgage deal that’s coming to an end, as a way of keeping repayments low in retirement.
Rather than spending the bulk of the disposable income from a pension on servicing and reducing your mortgage, the lower monthly payments mean you can retain more cash to fund our lifestyle, pass on to family or use for emergencies.
RIO mortgages may make it easier to do this, given interest-only repayments are significantly lower than a repayment mortgage.
You also don’t have to worry about building a fund to repay the capital debt. Previously, rules had stopped borrowers from using their property to repay an interest-only mortgage if they died or went into care. However, lenders can now accept a property as a repayment option on these deals.
How RIO mortgages work
You only pay the interest on the balance outstanding on an RIO mortgage.
So they are similar to standard interest-only mortgages that let you pay the interest on the loan monthly. The outstanding capital is paid off when you die or sell the property.
However, most RIO mortgages have a maximum age for when the term must end, such as when the borrower reaches age 99.
Some providers offer these mortgages to the over 55s, whereas others have a higher minimum age.
Typically, deals come with a maximum 60% loan-to-value (LVT), meaning you need to own at least 40% of the property outright.
As with any mortgage, ensure to compare rates to get the best deal available for your circumstances.
Other deals for older borrowers
Lenders are typically strict about who they offer loans to, and lots have conservative upper age limits.
However, plenty of older borrowers also have a large chunk of equity in their property and squeaky-clean credit records, so there is a growing number of options to cater for this market.
For example, equity release is another option for older borrowers, but these loans work differently to RIO mortgages.
Lifetime mortgages are the most popular form of equity release deals. Interest is often rolled-up on these plans, instead of paid monthly, and repaid when the borrower dies or moves into care. This can mean a big final bill for the estate.
Lifetime mortgages are typically sold by specialist equity release advisers, whereas RIO mortgages are available from general mortgage brokers.
An online mortgage broker such as Zoopla partner, Trussle can help you find out what mortgage deals you may be able to apply for as an older borrower.
You might also be interested in...
- Am I too old to get a mortgage?
- Remortgaging soars to highest level for almost a decade
- The Zoopla property jargon buster