You must be aware of one of the newest mortgage options available in Dec 2021!
With more than 100 retirement interest-only products on the market, you’re spoilt for choice with these fantastic options.
Could a retirement interest-only mortgage be the key to your retirement financial freedom?
We’ll help you discover:
- What a retirement interest only mortgage is.
- How it differs from equity release.
- The advantages and disadvantages of this mortgage option.
Our dedicated team is passionate about helping you have a dream retirement, so it’s our goal to provide you with all the necessary information. We combed the market to find the latest RIO scoop. Here it is!
What is a Retirement Interest-Only Mortgage?
A retirement interest-only mortgage is a type of later-life mortgage. It allows homeowners over the age of 55 to unlock tax-free cash from their home, with only the monthly interest being paid off in their lifetime.
Retirement interest-only mortgages are new to the retirement mortgage industry, having been established in 2018.
The features of an RIO include:
- Minimum age – Available if you’re 55 or older.
- Interest only repayments – The loan itself is repaid when you die or go to a care facility.
- LTV – Between 50% and 65%.
- Borrowing cap – Usually somewhere between £500,000 and £1,000,000.
RIOs were regulated by the FCA in March 2018, and they’re the 4th most popular loan catering to the over 55s. They’ve surged in popularity since the onset of the Covid-19 pandemic in 2020.
RIOs are very similar to the interest-only lifetime mortgage, but there are some key differences.
Who Qualifies for a Retirement Interest-Only Mortgage?
To qualify for a retirement interest-only mortgage, the youngest homeowner must be older than 55, you’ll need to pass an affordability check, and the lender will need to ensure that your home’s value is worth the collateral.
How Do Interest-Only Lifetime Mortgage Repayments Work?
With interest-only lifetime mortgage repayments, you’ll pay the interest on a monthly basis and the actual loan is repaid at the end of the plan when you die or enter a facility for long-term care.
Benefits of Retirement Interest-Only Mortgages
The biggest benefit of a retirement interest-only mortgage is that because you must make interest repayments, your family will be left with a larger inheritance than they would with other retirement products, like equity release.
Additional benefits in Dec 2021, include:
- Lower interest rates – The interest rates5 can be lower than that of lifetime mortgage schemes.
- Advice not compulsory – You don’t need financial advice, even though most financial experts recommend it.
- More capital – You can borrow more capital with the RIO than a lifetime mortgage.
- Pay back any time – You can repay the mortgage plan early, although there might be associated early repayment charges.
- Relocate – You have the right to move homes or downsize, as with the lifetime mortgage.
Drawbacks of Retirement Interest-Only Mortgages
The biggest drawback of a retirement interest-only mortgage is the risk that your lender could seize your property if you can’t repay the monthly interest.
Other disadvantages include:
- Affordability checks – You’ll have to successfully pass the mortgage provider’s income and affordability checks.
- Variable interest rates – Your interest rate might be fixed for the short term and could go up or down in the future (depending on your plan provider).
- Mortgage renewal – 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.
- Less inheritance – As with the lifetime mortgage schemes, your estate will ultimately be sold to repay the mortgage provider, affecting the amount of inheritance you’ll leave behind.
Our Most Commonly Asked Questions
What is a Retirement Interest-Only Mortgage?
Retirement interest-only mortgages (RIOs) are the latest set of equity release schemes that help older homeowners tap into the value of their property. They are designed for those borrowers who might find it harder to get a standard residential mortgage.
Unlike other mortgage loans, with 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.
Who Offers Retirement Interest-Only Mortgage Plans?
Several mortgage providers are currently launching incredible retirement interest-only mortgage deals that are specifically designed for 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
How Much Can You Release with a Retirement Interest-Only Mortgage?
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
How Do You Qualify for a Retirement Interest-Only Mortgage?
To qualify for a retirement interest-only mortgage, 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 a property in the UK
How Much Can You Borrow with A Retirement Interest-Only Mortgage?
The amount you can get from a retirement interest-only mortgage varies from lender to lender. However, to calculate the exact amount you can receive from the RIO, you should try ouer retirement interest-only mortgage calculator. By doing so, you can input:
- Your postcode
- Your estate’s market value
- The age of the youngest homeowner
How Does A Retirement Interest-Only Mortgage Work?
RIO mortgages 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 will only repay the interest (not the loan balance) each month. Thus, when the loan term ends, you only pay back the initial mortgage amount.
While seeking advice is not compulsory when opting for a retirement interest-only mortgage, it is still worth consulting your financial adviser before making any final decisions.
Furthermore, you must ensure that you’re aware of all your options, and speak to your closest family, who can support you through your retirement journey.
Do you wonder how much equity you could unlock with an RIO? Try our FREE retirement interest-only calculator today!