Retirement interest only (RIO) mortgages are a type of product aimed, as the name suggests, at those who have already retired or will soon be retiring. Retirement interest only mortgages are only available on your residential property. However, they are not to be confused with a standard residential interest only mortgage. RIO mortgages are not a type of lifetime mortgage such as equity release either. Retirement interest only mortgages are a specialist product with a specific target market.
While many choose to pay off their mortgage before retiring, this is not possible for everyone. A RIO mortgage can be the solution that keeps someone in their home, preventing them having to downsize or relocate in retirement. Equally, for those who are mortgage free but wish to upsize in retirement, a RIO mortgage can provide the funding required to make the move a possibility!
Affordability for RIO mortgages is assessed based on income in retirement. These mortgages have no maximum term and therefore the lender can only use sustainable income. Employed income which is not indefinitely viable cannot be used towards the affordability assessment. The most commonly used source of income is pension income, from both private and state pensions. If there are two people applying for a RIO mortgage, the lender will look at the lowest earner in retirement for affordability. This is because they have to ensure the mortgage will remain affordable should the higher earner pass away. If, on death, a portion of the higher earner’s pension is transferable to the lower earner, this can be used in the affordability assessment.
Compared to lifetime mortgages such as equity release, RIO mortgages are generally a cheaper long-term option. RIO mortgages work like a standard mortgage with payments being made every month. In contrast, equity release mortgages do not require monthly payments. Instead, the amount owed accumulates over time and is taken from the equity when the property is sold.
Retirement interest only mortgages are available to people over 55 years old, the earliest point you can typically access your pension. Aside from this, RIO mortgages are very similar to standard mortgages. They can be taken on a fixed rate basis for a variety of product term lengths. Depending on the terms of the mortgage offer, RIO mortgages also allow overpayments, carry early repayment charges and are portable to another property. The latter means the mortgage can be transferred between properties if the borrowers wish to move, but retain the mortgage. Remortgaging a RIO mortgage works just the same as with the ordinary remortgage process too. Rate switch options are also available if, at the end of the product term, staying with your existing lender makes financial sense. As there is no maximum mortgage term, RIO mortgages are only required to be repaid if borrowers move into long-term care, pass away or choose to sell the property.
Retirement interest only mortgages are certainly an option worth knowing about. If you’re due to be retiring shortly or you’re currently retired and want to know more about RIO mortgages, we’re here to help with free, professional advice. A RIO mortgage can keep you in your home or it can facilitate that move you’ve always wanted to make.