Retirement Interest Only Mortgage

How to Safely Release Home Equity With an Interest-Only Lifetime Mortgage Plan After Retirement

Contributors: Nicola Date, Katherine Read. Edited by Rachel Wait & Reviewed by Francis Hui

Looking for a Great Retirement Interest-Only Mortgage Package? Find Out if You Qualify, What You Can Expect and Whether it's the Best Option for You.

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What is a Retirement Interest-Only (RIO) Mortgage?

You must be aware of one of the newest mortgage options available in Jan 2022!

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’s 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 ÂŁ500,000 and ÂŁ1,000,000.

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.

How Does A RIO Mortgage Work

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

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 Jan 2022, 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

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.

Interesting read about two alternatives: Interest Only Mortgage and Reverse Mortgage

Our Most Commonly Asked Questions

What is a Retirement Interest-Only Mortgage?

Who Offers Retirement Interest-Only Mortgage Plans?

How Much Can You Release with a Retirement Interest-Only Mortgage?

How Do You Qualify for a Retirement Interest-Only Mortgage?

How Much Can You Borrow with A Retirement Interest-Only Mortgage?

How Does A Retirement Interest-Only Mortgage Work?

In Conclusion

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 cash you could receive with an RIO? Try our FREE RIO calculator today!

Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

rachel w

Rachel Wait
Personal Finance Journalist

Rachel is an experienced finance journalist and editor with a particular interest in personal finance and consumer affairs. She has vast experience writing about money issues, property, insurance, and consumer affairs, and you’ll find her articles regularly featured in top media and newspaper publications.
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Written by
John Lawson
Founder SovereignBoss

John is passionate about education and has made it his life-long mission to assist UK citizens on their future financial options, with a specialist interest in equity release, and SovereignBoss is the natural extension of this passion.

Reviewed by
Francis Hui
Senior Risk Manager

Having held various high-level roles across the industry, Francis is truly an expert in aiding UK citizens in their financial decisions and risk analysis. His unique insight and statistical knowledge make him the perfect person to help you take your financial future to the next level.
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Katherine Read
Consumer Affairs Writer

Since joining the editorial team at SovereignBoss, Katherine has become focused on bringing transparency to finances and opportunities for those approaching retirement age. She writes on the topics of equity release, home reversion, and mortgages.

Nicola Date
Writer & Journalist

Nicola is a financial writer for SovereignBoss and is passionate about the opportunities that equity release can open up for homeowners. Her extensive business experience and deep understanding of the industry means that she’s always up-to-date with the latest developments.

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