Mortgage Advisor & Director
Senior Equity Release Advisor
Retirement interest-only (RIO) mortgages can be an excellent alternative to equity release for homeovers over the age of 50.
In this guide, we look at the benefits of RIO mortgages, how to qualify for one, and why they could be the right option for your needs and circumstances.
What is a Retirement interest-only mortgage & how do they work?
A retirement interest-only mortgage is similar to equity release products, in that they are intended for older borrowers and don’t need to be repaid in their lifetime. That said, you do repay the interest charged on this type of mortgage, so it’s often preferred by those wanting to retain as much of their estate as possible for inheritance purposes.
They are also an alternative option for applicants beyond 50 who are unable to meet the affordability criteria to remortgage, particularly for those who hold an interest-only mortgage on their home.
Some people also use them as a direct alternative to equity release products, to access the equity in their home. This could be for any purpose, from home improvements or adaptations, to supplementing your retirement income.
A RIO mortgage can only be secured on your residential home, and works like a traditional interest-only mortgage. You make monthly payments to cover the interest charges only. However, there is no end date, meaning the loan is repaid from the sale of the property, usually after you die or enter long-term care.
Eligibility criteria
Criteria vary from one lender to the next, but typically include:
- Age limits - You’ll need to be over 50, or in some cases over 55. If applying jointly, in some cases both applicants will need to meet the minimum age limit, however, not all lenders impose this. You do not need to be retired, regardless of the product name
- Home ownership - You must own your main residential home outright, or hold a minimum level of equity in your home. This varies by lender
- Property value and type - Usually your property will need to have a minimum value ranging from £80,000 to £125,000, however, this also varies by lender. Some lenders are also reluctant to lend on certain types of property, such as ex local-authority houses and flats
- Affordability - As you’ll need to make monthly interest repayments, you’ll need to prove a monthly income. This could be earnings, a pension, or other asset based wealth
- Maximum LTV - Usually you’ll only be able to borrow at a maximum of 50-55% LTV (Loan to value), however, some lenders assess loans in a more bespoke way without specific limit
How to get a RIO mortgage
The best way to access a competitive retirement interest-only mortgage is to speak to a specialist broker, like ourselves. There are significant differences in the terms and conditions offered by each lender and the criteria each will want you to meet. This means that being turned down by one does not mean you don’t qualify.
There are also certain lenders who offer a limited distribution, therefore only offering their products through an intermediary, like Teito, with in-depth knowledge of RIO mortgages.
Connect with a RIO mortgage expert today
How much can you borrow?
Usually your borrowing is based on a maximum LTV and that value of your home. This means that the lower your loan size compared to the value of your home, the easier it should be to qualify.
Those with lower LTV loans are also typically offered better retirement interest-only mortgage rates.
Depending on the value of your home and your personal circumstances, here’s how much you may be able to borrow at 50% LTV:
|
Property Value |
Loan size |
|
£80,000 |
£40,000 |
|
£125,000 |
£62,500 |
|
£250,000 |
£125,000 |
|
£500,000 |
£250,000 |
The table below shows the maximum you could potentially borrow at 60% LTV:
|
Property Value |
Loan size |
|
£80,000 |
£32,000 |
|
£125,000 |
£50,000 |
|
£250,000 |
£100,000 |
|
£500,000 |
£200,000 |
Pros and cons
The table below highlights the main advantages and disavantages of RIO mortgages to help you decide whether this is the right option for you:
|
Advantages |
Disadvantages |
|
No need for you to demonstrate a plan for repaying the capital part of the mortgage |
You will need to demonstrate that you can afford the interest-only monthly repayments |
|
You are more likely to have something to pass on as an inheritance |
Your home will be sold to repay the loan when you die or start long-term care |
|
Generally more cost-effective than most lifetime mortgages |
If you cannot keep up monthly repayments, your home is at risk of repossession |
|
The interest is not rolled-up (compounded) like with equity release mortgages |
The LTV and your retirement income will determine how much you can borrow |
Retirement interest-only mortgage providers
Rio mortgages are not really offered by typical high street bank mortgage lenders. There are a number of building societies, as well as specialist lenders who offer exclusively later life lending products, such as retirement interest-only mortgages and equity release.
There is certainly plenty of competition in this niche of mortgage lending, so it’s worth taking the time to speak to a broker. Teito can help you find the best retirement interest-only mortgage for your needs and circumstances.
RIO mortgage rates
Rates on RIO mortgages are generally similar to residential interest-only mortgages but can sometimes be higher. The exact rate you qualify for will depend on the amount of equity you hold in your property and the overall strength of your application, with will be assessed based on factors incuding your credit history.
Speak to one of our retirement mortgage advisers to find out what rate you qualify for.
Alternatives to consider
The most popular alternatives to RIO mortgages are as follows:
Lifetime mortgages
Lifetime Mortgages are very similar to retirement interest-only mortgages because you don’t need to repay the balance during your lifetime. They are a form of equity release product only available to those 55 plus.They are more tightly regulated than RIO mortgages, so you’ll need to take advice from a certified equity release specialist in order to set one up.
With a lifetime mortgage you borrow against the value of your home, but the interest is usually rolled-up (added to the loan balance) and repaid from your estate, meaning they may not be as suitable for those wishing to leave a substantial inheritance. You can opt to repay some or all of the interest on a monthly basis, whereas with RIO mortgages, it’s a requirement.
Mortgages for pensioners
Just because you are approaching your retirement years, that doesn’t necessarily mean you are restricted to later-life lending products like RIO mortgages and equity release.
There are a number of lenders who have flexible age caps and are willing to offer regular interest-only or capital repayment mortgages to retirees with minimal caveats.
While most lenders won’t offer you a mortgage if you will be aged 75 at any point during the term of the agreement, a minority lend up to 80-90 years old, and a smaller number have no specific age limits, as long as you can prove that you can keep up with your payments.
Why choose Teito for your RIO mortgage?
Teito can help you to decide whether a retirement interest-only mortgage is the right option for you, or recommend a suitable alternative. Our qualified advisers are experienced in all areas of later-life lending, and can explain each option in a clear concise way that gives you the confidence to make the right decision for your future.
Teito offers:
- Brokers who specialise in RIO mortgages and arrange them every day
- A FREE, no obligation initial consultation
- End to end advice and support throughout the entire application process, should you proceed
- A 5-star rated service, as demonstrated across a number of leading review websites
Ready to take advantage of a free, no-obligation chat with a broker who specialises in retirement interest-only mortgages and similar products? Get started here
FAQs
There is no maximum age as the balance does not need to be repaid until you pass away. At this point the RIO mortgage provider will take the balance from the proceeds of the property sale.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.