Retirement interest only mortgages or RIO as they’re sometimes known as, are simply interest only mortgages for the over 55’s but with a few differences. Like an Equity Release scheme, you borrow against the property but with an RIO you pay back the interest, not the loan, each month. You then have to pay back the loan against the property when you sell up, move into later life care or die. As always there are t’s & c’s but the standard one throughout, is that you have to pay back the interest over a definitive time frame. Whether that be an agreed amount of years or till you hit a specific age. Like many mortgages they come with restrictions, however it is designed to aid borrowers later on in life, and perhaps not in a financial position to get an ordinary residential mortgage.
If you needed a lump sum for any reason then you can withdraw this from the equity of your property; you might be helping your children get on the housing ladder themselves, paying for the trip of a life time or you need some work completed to your own property.
The great thing about RIO mortgages is that you don’t have to go through the painful task of proving your whole income/pension and have a full assessment you will have to detail that you can have the funds to make the payments. Some of the RIO schemes do let you pay off capital (plus the interest), thus reducing your loan so more of your estate can be passed to those that you want to leave it to.
All lenders have slightly different requirements on how much you can draw against your property, so it is worth getting an advisor to view your options and guide you to the right place. More and more lenders are reviewing their current deals as they have acknowledged that the current later life lending market needs, are not being met. People are living longer, so the products they currently have in place need updating. There are currently over 15 products available.
As a general rule of thumb if you want to borrow on an interest only basis you will be able to borrow less. Whereas if you wanted a larger sum to be drawn down against your property then you would have to look at a capital repayment. This will all also be down to the value of the property, if you meet the minimum income and minimum loan size. This financial assessment is small in comparison to a regular mortgage but all lenders under FCA guidelines will have to slightly review your income and outgoings to check you can keep up with the payments, as usually the only source of income is either a pension, savings or investments and not in employment.
RIO are somtimes better for you and for your loved ones who will be inheriting your property, as with Equity Release there will be much less equity in your assets.
If you are considering doing anything with your property, please do seek advice from a qualified financial advisor.