What is a Retirement Interest-Only Mortgage?
Retirement Interest-Only Mortgages (RIO’s) are a fairly recent type of mortgage, similar in principle to the standard interest-only mortgages but with some key differences with the older population in mind (50-55+ age group). Historically, older borrowers have struggled to obtain regular residential mortgages, however with the average person living longer, and indeed working longer, many lenders are creating innovative new mortgage products for this demographic.
RIO’s allow you to borrow money against your property and then only pay the interest back each month and not the capital itself. With the majority of RIO mortgages, the capital loan is repaid when you sell your home, move into a care home or die. However, some RIO mortgages now allow you to repay some of the capital loan meaning that you will reduce the amount owed to the lender and leave you with a larger share of your property to pass on to your family or other beneficiaries.
One of the main benefits of Retirement Interest-Only Mortgages is that there are typically less demanding criteria that you need to meet, as you only need to prove that you can meet the monthly interest payments. Lenders will often consider a broad range of income sources including future pension, investment returns, rental income and benefit payments. As with regular mortgages, different lenders offer slightly different RIO mortgages, often with different terms and conditions. Make sure that you have considered your specific requirements and chose the right product for you.
Why Would I Want A Retirement Interest-Only Mortgage?
As previously mentioned, the general population are now living for longer and often having to work to an older age. In the past, getting accepted for a traditional mortgage product in your 60s and above was generally an onerous task. However, mortgage lenders are starting to adopt a more open-minded approach when it comes to the older population.
There are a number of situations that could make an older person consider an RIO mortgage, such as;
- They currently have an existing interest-only mortgage. These type of mortgage were very popular before the 2008 ‘credit crunch’ as they allowed borrowers to only pay the interest every month on their mortgage loan. There are many people who still have this type of mortgage in place without any plan on how to repay the mortgage at the end of the term, apart from selling their home. A move to a Retirement Interest-Only Mortgage could help to resolve this situation.
- If you want to release funds from your property to gift money to a child or loved-one to help them take their first steps to get on the property ladder.
- To downsize or purchase a retirement home that would better suit your requirements when you are older.
There are currently over 19 lenders offering a variety of Retirement Interest-Only Mortgages, which is in itself, a positive sign that older borrowers now have more choice than ever before.
How Much Can I borrow?
Just as with regular mortgages, there is an ever-increasing choice of Retirement Interest-Only Mortgages with their own lending criteria. Lenders will often consider not just your age at the time you apply for the RIO mortgage, but also the age you will be at the time the mortgage term ends. The good news here is that an increasing number of lenders are accepting income earned up to higher ages, often 70 to 80 years of age.
You will still have to meet the lender’s mortgage affordability criteria to prove you can afford to pay the monthly interest-only repayments, but you will not need to prove that you have a plan to repay the mortgage loan itself.
Ultimately, the amount you can borrow will be based on your retirement income (pension, rental income, savings or investments etc.) and your ‘loan to value ratio’. This is basically the ratio of the amount you want to borrow against the value of your home. So if you want to borrow £50,000 and your property is valued at £100,000 you would have a loan to value ratio of 50%.
If you are considering a Retirement Interest-Only Mortgage on an interest repayment only basis, you will generally be able to borrow less than if you opt for an ROI mortgage where you pay both interest and some of the loan amount off too.
Call Mortgage Solutions on 028 9182 8255 or find your local branch and talk to one of our experienced Mortgage Advisers today. They will be able to talk you through the mortgage affordability checks to find the right outcome for you.
Are There Alternatives To A Retirement Interest-Only Mortgage?
Yes, one alternative, for example, is the increasingly popular range of equity release schemes on offer, also known as ‘Lifetime Mortgages’. With Lifetime mortgages, you typically do not make any monthly payments as the interest is rolled-up into the loan amount and paid off from your house sale when you die or move into nursing care.
However, at the end of the mortgage term, you will typically have a larger amount to repay (original loan amount plus consolidated interest) as no monthly payments have been made. This can result in you having less money to pass on to friends and family due to the higher total loan repayment. Read our guide on Equity Release Schemes here.
In addition to Retirement Interest-Only Mortgage and Lifetime mortgages, there is a growing trend of lenders offering traditional mortgage products to the older population. It may well be that you can still secure a typical remortgage deal. The best course of action is to come and talk to us, explain your circumstances and we can guide you through the options available and help you choose the right option!
Mortgage Solutions NI has been trading since 2005 and currently have over 70 mortgage advisers across Northern Ireland. We have delivered over 4000 thousand mortgages totalling over £400 million in lending and protected over 2,300 customers in the last 12 months. We can access over 2,000 mortgages from over 50 of the top UK lenders and have access to special mortgage deals not available on the high street.
Please do not hesitate to contact us today to arrange a meeting or call with one of our experienced mortgage advisers, they are always happy to help with any questions!
Your home may be repossessed if you do not keep up repayments on your mortgage
You will need to take legal advice before releasing equity from your home as Lifetime Mortgages and Home Reversion plans are not right for everyone. This is a referral service.