Retirement Interest Only Mortgages (RIO)
Retirement-interest only mortgages (RIOs) are a relatively new set of products designed to help older borrowers who may struggle to extend the term on a standard residential mortgage once they gave retired. They allow you to borrow against your property and only pay back the interest (and not the loan itself) each month. RIOs are very similar to standard interest-only mortgages but the key difference is that they have no term end date, meaning you only repay the loan when you sell your property, move into long term care or die.
How much can I borrow?
The amount you can borrow will be based upon a detailed affordability assessment, looking at your income and outgoings to make sure you can keep up with interest payments. Lenders will only include income from your pension, savings and investments in their calculations, and in the case of joint borrowers, the assessment will generally be based on the income that will be available after the first death. Additionally, the loan amounts are typically capped at 60% of the property value.
Interest Rates & Availability
RIO mortgages are not generally available with mainstream mortgage lenders such as Banks and the major UK Building Societies, as they typically only offer mortgage terms in line with a borrower’s intended retirement age. However, many of the smaller regional Building Societies and a few specialist lenders have been very active in this sector in recent times.
As RIO’s are classified as a niche product that requires a manual underwriting assessment the interest rates are higher than standard mortgages and are typically fixed for between 2 and 5 years at rates ranging from 2.95%-3.95%. After the 2- or 5-year fixed-rate period the lender will generally offer you a new deal based on market rates
How can Jordan Lynch help?
At Jordan Lynch, we’ve been arranging mortgages for older borrowers since 2007. Our experienced team will fully review your circumstances and unlike many later life advisors, we will also consider conventional mortgage options which are a lot cheaper than RIO’s. Our team can talk you through your options. For more information about how we can help you with lifetime mortgages please get in touch with us today.
Key Considerations
RIO mortgages can be a good way to refinance a conventional mortgage when you have reached retirement age, or indeed borrow extra money in retirement, but they aren’t right for everyone. Here are some things to consider if you are thinking about taking out a RIO mortgage:
- You must be able to afford the interest payments for the duration of the mortgage as there is no option to allow the interest to roll up as per a lifetime mortgage.
- Interest rates are only fixed for a certain period, typically 2 or 5 years, therefore, you must budget for potential increases to interest rates in the years ahead.
- The amount of inheritance that you leave your family or friends when you die will also be affected, as the loan amount will be deducted from the sale price of your property when sold.
- Having taken out a RIO mortgage if you decide to move home you will either have to transfer your mortgage to your new home or repay the mortgage in full from the sale proceeds if downsizing. If transferring the mortgage, the new property will have to meet the lender’s criteria as suitable security for the mortgage, which generally rules out retirement properties that have age related restrictions.
- If you repay a RIO mortgage during the fixed rate period, then there will be early repayment charges to pay which are typically between 2% and 5% of the amount repaid.