Retirement Interest Only Mortgage

I think you’ll agree with me when I say…

Retirement typically sparks visions of fun times like golfing, vacationing and playing with your grand kids. However, with minimal pension rates and the ever-rising economy, how do you go about actualizing your dreams?

Well, as per a 2018 survey by a Securian Financial Group, 57% of retirees after discovering the incredible equity release and retirement interest-only mortgages are now able to enjoy their retirement through supplementing their pensions with these fantastic schemes as compared to the 30% in both 2008 and 2012 when the same survey was taken.

Therefore, if you want to be in the 57% of homeowners soaking in the sun in Spain and Bali, actualizing their long-life dreams, and making the home improvements they’ve been dying to work on, check out this guide and get to understand the workings and benefits of taking out a retirement interest-only mortgage.

If you need more information on lifetime mortgages though, be sure to check the guide on ‘What is a Lifetime Mortgage.’

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Let’s Start With the Basics

The world of financial products is ever-changing,and new products keep coming up on a daily. However, even with these new products cropping up, there are still limited financial options for older people wanting to continue accessing mortgages into retirement.

While most plan providers have started relaxing their upper age limits for traditional mortgages, there are still many limitations.

For example, as a homeowner, you must be able to prove that you can make monthly mortgage repayments in retirement, meaning you have to pass your plan provider’s credit, income and ‘affordability’ checks.

Substantiating income in retirement can be challenging,and this is where the hurdles to retirement lending arise. P60’s, projections, state pension letters, and investment and pensions statements are commonplace necessities for retirement lending.

In response to these restricted borrowing opportunities for homeowners aged 55 and above, the financial services watchdog – the Financial Conduct Authority (FCA) decided to help you out by relaxing its regulations enabling you to repay your mortgages when the last homeowner dies or goes into long-term care (an element that resembles that of equity release schemes).

What is a Retirement Interest-Only Mortgage?

In 2018, the FCA sanctioned retirement interest-only mortgages. Since then, RIO’s have become the fourth form of later life mortgage accessible to proprietors over the age of 55.

A retirement interest-only mortgage (RIO) is practically the same as the standard interest-only mortgage with only two or three key differences.

• You repay the loan upon your death or when you decide to move into permanent care
• Unlike the interest-only mortgage, with the RIO, you only have to prove you can afford the monthly interest repayments

RIO’s have no minimum age requirement;however, they are generally designed for older borrowers, those who are over 55, over 60 and pensioners who would prefer to apply for the retirement interest-only mortgages than a typical interest-only mortgage.

They’re also similar to some types of equity release plans such as lifetime mortgages, where you pay-off the initial amount and probably any interest when you breathe your last or move into long-term care.

The only notable difference is that with a lifetime mortgage, you will either:

• have a more substantial amount to repay at the end because there are no monthly repayments and the interest is compounded and added to the overall loan value, or
• You can opt to make monthly interest payments and ad-hoc capital repayments during the term of the mortgage. Choosing this option helps you reduce or halt the effect of interest roll-up, but it comes with higher monthly repayments.

However, when it comes to a retirement interest-only mortgage, you will only have to pay off the interest every month, so your monthly repayments will be lower.

It then means that unlike with other financial products, with the RIO mortgage, you’ll be more likely to have something to offer as an inheritance or pay for long-term care.

The Benefits of Retirement Interest-Only Mortgages

Like all other later life mortgages, RIO’s have their perks which include but are not limited to:

• They have interest rates that are typically lower than those of lifetime mortgages schemes– which are the most sorted out type of equity release plan
• With RIO’s you don’t need financial advice (even though it’s recommended)
• You have the capability and the potential to borrow more than with a lifetime mortgage
• You have the right to repay your mortgage early (though you may also have to pay a hefty early repayment charges depending on your plan – there are plans where this can be avoided)
• You don’t have to worry about the inheritance you leave since with this plan you’re more likely to leave your family a more substantial amount than when you’d have opted for an equity release plan
• You don’t have to worry about the inheritance you leave since with this plan you’re more likely to leave your family a more substantial amount than when you’d have opted for an equity release plan

The Pitfalls of Retirement Interest-Only Mortgages

Just as other mortgage products have their perks, they also have some drawbacks,and the RIO’s are no different. Here are some of the pitfalls of taking out a retirement interest-only mortgage:

• If you have an existing mortgage, you have to make sure that you repay it first before embarking on any other plans (as with a lifetime mortgage)
• It requires you to pass the mortgage plan providers’ income and affordability checks
• You have to ensure that you make the required monthly interest repayments
• Your interest rate can either be fixed for the short term or go up (or down) in the future
• The mortgage will have to be renewed at the end of the original interest-rate period – probablysustaining new feeslinked with taking out a traditional mortgage
• As with a lifetime mortgage, your plan provider will ultimately sell your home, impacting the amount of inheritance that you leave behind, though not with the same intensity as an equity release scheme

Retirement doesn’t have to mark the end of your glory days. It should mark the beginning of a new chapter in your life and what better way to do so than by taking a retirement interest-only mortgage to help you maintain your lifestyle while also allowing you to enjoy the perks that life has to offer?

Well, deciding on which scheme is suitable for you can be a complicated process, and that said you would have to seek financial guidance from a professional.

So, if you need to learn more about this plan and what scheme suits your needs best, be sure to click here and see how much equity you can release and also chat with an expert for free.