It’s your 40th wedding anniversary, and after 35 years of raising kids and grandkids, you want to have the most memorable anniversary with the love of your life. You’ve been talking about having a Caribbean wedding, and you think this would be the best time to make that dream to come true. However, after checking out your finances, you realize that you don’t have enough capital to give your wife the best day of her life.
Well, worry, not. In the current financial market, mortgage1 lenders are offering older borrowers fantastic mortgage options in retirement like the retirement interest-only mortgages.
If you need more information on though, be sure to check the guide on ‘What is a Lifetime Mortgage.’
That said here’s a detailed guide on what these mortgage schemes are and how they work.
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Demystifying Retirement Interest-Only Mortgages
It can difficult to access cash when you’re close to retirement or two years into your sunset years. While most mortgage providers have relaxed their upper age limits for standard loans, there can be several restrictions.
For instance, you have to provide proof that you can afford to make monthly mortgage reimbursements in retirement. It means you have to pass the mortgage company’s credit, income and ‘affordability’ checks. Proving income while in retirement can be challenging, and it’s where obstructions to retirement lending arise. P60’s2, state pension letters, projections, SA302’s, investment and pensions statements are standard requirements when you’re taking a retirement loan option.
Therefore, in response to the restricted borrowing prospects for older proprietors, the national financial services regulator – the Financial Conduct Authority3 (FCA) decided to relax its rules. Therefore, today there are residential mortgages that you can repay when the last homeowner passes on or move into residential care, like the retirement-interest only mortgage (which somewhat resembles the equity release4 plans).
Unlike the traditional residential mortgages, the RIO mortgage scheme allows you to continue residing in your estate, and you only have to pay back the interest (not the mortgage itself) every month, thus allowing you to save up some cash for inheritance.
How Does A RIO Mortgage Work?
The FCA regulated the best retirement interest-only mortgage in March 2018. These mortgage plans are today the fourth most popular sunset-years-loan available to homeowners over the age of 55.
The mortgage schemes resemble the traditional interest-only mortgage where you have to repay the interest accrued over the loan every month. It helps in maintaining a level of balance throughout the life of your loan.
The main difference between interest-only mortgage after retirement plan and retirement mortgage is that the retirement interest-only loan has no fixed term and only requires repaying when you die or move out permanently.
Benefits of Retirement Interest-Only Mortgages
There are numerous benefits of the retirement interest-only mortgage plan, and some of these include:
- The interest rates5 can be lower than that of the lifetime mortgage schemes
- You don’t need financial advice, even though most financial experts recommend it
- You can borrow more capital with the RIO than a lifetime mortgage
- You can repay the mortgage plan early, although there might be associated with early repayment charges
- Your inheritance is probably going to be more substantial than when you take out an equity release mortgage
- You have the right to move homes or to downsize as with the lifetime mortgage
Drawbacks of Retirement Interest-Only Mortgages
There are several disadvantages of the retirement interest-only mortgage, and some of these include:
If you have an existing mortgage, you have to make sure that you repay it first, as with all lifetime mortgage plans
- You’ll have to pass the mortgage provider’s income and affordability checks successfully
- You’ll have to make monthly interest repayments
- Your interest rate might be fixed for the short term and could go up or down in the future (depending on your plan provider)
- You have to renew the mortgage scheme at the end of the initial interest-rate period – potentially incurring new costs and charges associated with taking out a residential loan policy
- As with the lifetime mortgage schemes, your estate will be ultimately sold to repay the mortgage provider, impacting the amount of inheritance you’ll leave behind
Anything is possible with the right mortgage option. Therefore, start making those plans and give your wife the wedding anniversary of her life with the retirement interest-only mortgage. It couldn’t get any better! Nonetheless, even if you don’t have to get financial advice, make sure that you consult your financial advisor so that you can learn all there is to know about the mortgage, and he/she can also help you get the best RIO mortgage deal and with the best loan provider on the market.
So, if you need to learn more about this and what suits your needs best, be sure to click here and see how much equity5 you can release and also chat with an expert for free.
Our Most Commonly Asked Questions
Well, the retirement interest-only mortgages (RIOs) are the latest set of equity release schemes that help older homeowners to untie the value of their residence. There are designed for those borrowers who might not quickly get a standard residential mortgage.
Unlike other mortgage loans, with the RIOs, you only pay back the interest (and not the loan itself) each month. Therefore, when the loan term ends, you only pay back the original mortgage amount.
Several mortgage providers are currently launching incredible retirement interest-only mortgage deals that are specifically designed for the older borrowers. Some of these mortgage lenders include:
- Bath Building Society
- Beverley Building Society
- Family Building Society
- Hodge Lifetime
- Ipswich Building Society
- Leeds Building Society
- Loughborough Building Society
- Marsden Building Society
- Nationwide Building Society
- Newbury Building Society
- Nottingham Building Society
- Shawbrook Bank Tipton & Coseley Building Society
To get an idea of the amount of capital you can get from taking out a retirement interest-only mortgage, you have to use the retirement interest-only mortgage calculator which requires you to input:
- The value of your estate – it has to be valued over €70,000
- The age of the youngest homeowner – you have to be aged 55, or have reached the state pension age
- Your postcode (to figure out where you live) – your estate has to be located in the UK
The retirement interest-only mortgage criteria are that you have to be:
- Aged 55 and above, 60 years or have reached the state pension age5
- A homeowner with an estate worth more than €70,000
- Own property within the remits of the UK
The amount you can get from a retirement interest-only mortgage varies from lender to lender. However, the exact amount you can receive from the RIO, you can use the retirement interest-only mortgage calculator. By doing so, you can input:
- Your postcode
- Your estate’s market value
- The age of the youngest homeowner
They work by offering you some capital based on your home’s value, and you can repay the mortgage when you die or move into permanent care.
Unlike other lifetime mortgages, with the RIOs, you only pay back the interest (and not the loan itself) each month. Thus, when the loan term ends, you only pay back the initial mortgage amount.
How much money could you release?
A lifetime mortgage plan allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.