Retirement Interest-Only Mortgages (RIO) Should You Get One In 2024? (2024)

Retirement interest-only mortgages can offer a lifeline to over 50s struggling to remortgage. And if you want to unlock equity in your home they can be a cheaper alternative to equity release. But there are some key differences. Here’s how they work.

Retirement interest-only mortgages can offer a lifeline to over 50s struggling to remortgage. And if you want to unlock equity in your home they can be a cheaper alternative to equity release. But there are some key differences. Here’s how they work.

What is a retirement interest-only mortgage?

Retirement interest-only mortgages, also known as ‘RIO Mortgages’ are similar to standard interest-only mortgages with two major differences:

• You don’t have to repay the capital until you die or go into long-term care. Then your home is sold, and the lender is repaid from the proceeds.
• You only have to prove you can afford the monthly interest payments.

You’ll need to be over 50 to get a retirement interest-only mortgage, although some lenders may insist you’re 55 or older.

RIO mortgages can be used for most purposes, including paying off an existing mortgage. So this could benefit you if you’re struggling to get a mainstream mortgage due to age limits.

How will I repay a retirement interest-only mortgage?

There are two elements to repaying a retirement interest-only mortgage: the interest and the capital. You repay the interest on the loan with monthly payments. The capital is repaid as a result of your house being sold, either when you die or go into long-term care.

How do RIO mortgages work?

Here’s an example of how retirement interest-only mortgages work.

Sarah and Peter have a property worth £400,000 and borrow 25% (£100,000) at a 5% interest rate and make monthly repayments of £416.

If they go into long-term care in 15 years’, it’s time to repay the debt which will still be £100,000. Assuming Sarah and Peter’s property is now worth £500,000, £400,000 would be left after the sale of their home. And they would have paid £74,880 in monthly interest repayments over the 15 years.

Retirement interest-only mortgage vs lifetime mortgages

Retirement interest-only mortgages and lifetime mortgages are both retirement mortgages. But the main difference is that with lifetime mortgages, which is a type of equity release, interest can be rolled up and repaid at the end of the loan, so there are no monthly payments. But if you let it roll up rather than repay it, the debt grows as time passes.

For example, looking at the above example of a property worth £400,000, if Sarah and Peter borrow £100,000 at 5% interest and make no monthly repayments, the debt would have grown to £211,370 over 15 years, assuming it is compounded every month. Assuming the house’s value increased to £500,000 there would be £288,630 left after the loan was repaid, compared to £400,000 with the retirement interest-only mortgage example.

The application process is also stricter with retirement interest-only mortgages because you’ll need to be able to prove you can afford the interest repayments.

What are the advantages of retirement interest-only mortgages?

The advantages of retirement interest-only mortgages include:

• You don’t need to downsize to release money from your home.
• Unlike with a traditional repayment mortgage, with a retirement interest-only mortgage you will only have to prove that you can repay the interest each month.

• The loan term is not fixed. So, you don’t have to worry about repaying the capital until you are finished with your home.
• There is no “interest roll-up”. In other words, compounding won’t erode the amount of capital you have left in your house to pass on to your family.
• They are usually cheaper than lifetime mortgages.

Disadvantages of retirement interest-only mortgages?

While the disadvantages of retirement interest-only mortgages include:

• You need to pass affordability checks to prove you can meet the monthly interest repayments.
• Your home will be sold to repay the capital when you die or enter long-term care.
• If you don’t make your repayments, you put your home at risk of repossession.
• The amount you can borrow will be based upon your retirement income and the value of your home.

Who offers retirement interest-only mortgages?

Demand for retirement interest-only mortgages has increased in recent years, and there is now a much wider range of options to choose from.

RIO mortgage lenders include:

• Leeds Building Society
• Nationwide
• Legal & General
• Saffron Building Society
• The Family Building Society

As a whole of market mortgage broker, to suit your circ*mstances. Let them compare the best retirement interest-only mortgages on your behalf and explain which deals you’re likely to be eligible for. Once they have found the right mortgage deal for you, they’ll guide you through the application process from start to finish. Click below or call them now on 0800 0732326.

Reasons for taking out a ROI mortgage?

There are lots of reasons why people take out retirement interest-only mortgages. These include:

• Paying off an interest-only mortgage: One reason to get an retirement interest-only mortgage is to pay off an interest-only mortgage that has matured.
• Buying a property to let out: If you do this, ideally the rent on your Buy to Let property would cover the RIO mortgage repayments. However, you’ll need to look at the financial side carefully. A good place to start is our rent calculator which tells you how much you could rent out a property for based on your property type, location and local demand.
• Debt consolidation: If you have debts, you may consider taking out a retirement interest-only mortgage to release cash from your house to pay them off. Before doing this it’s advisable to get independent financial advice.
• Home improvements: You may want to get a retirement interest-only mortgage to fund improvements to your home if it means you can make changes to your property that mean you can live there for longer. For example, adding a downstairs bathroom or bedroom.
• Helping children or grandchildren onto the property ladder: With retirement interest-only mortgages, you could release some of the equity you’ve built up in your house to give to your children or grandchildren to help them get on the property ladder. Read more in our guide on The Bank of Mum and Dad – How to help your child buy a home.
• Estate planning: While if you have a large estate, you may consider taking out a RIO mortgage to pass on some early inheritance to family members. By reducing the size of your estate in advance means there may be a smaller inheritance tax bill when you die. However, before doing this, make sure you take independent financial advice to ensure you make the best decision for you. Find out more in our guide on How to avoid inheritance tax.

Who can get a retirement interest-only mortgage?

Banks and building societies will assess a few things before offering you a retirement interest only mortgage.

1. Your age: You need to be at least 50 to apply for a retirement interest only mortgage although many lenders require you to be at least 55.
2. Income: You need to be able to prove you have a steady, reliable income that will more than cover the interest repayments on the mortgage
3. House value: Lenders will assess the value of your home and will only lend you a percentage of that amount.

How much can you borrow with a RIO mortgage?

The amount you can borrow on a retirement interest-only mortgage will depend on a number of factors including your lender’s affordability assessment and on the total value of your home. Your loan to value will also be considered.

In general with both retirement mortgages and standard mortgages, you can borrow less with an interest-only mortgage than when you are also repaying the capital. This could mean you can borrow 50% of the value of your home interest-only, but you could borrow 65% if you were repaying the capital too.

How do I get the best interest-only retirement mortgage?

More providers are offering retirement interest-only mortgages after the Financial Conduct Authority re-categorised retirement interest-only mortgages out of the equity release sector and into the standard mortgage bracket in 2018. This meant mainstream lenders could start offering retirement interest-only mortgages.

Make sure you take expert advice: speak to an independent broker or independent financial adviser to discuss all the options so you can decide the best next step for you.

For help finding the lender who is going to offer you the best deal, we would recommend speaking to a fee free mortgage broker. .

What are the best retirement interest-only mortgage rates available?

When it comes to retirement interest-only mortgage rates, available rates fluctuate but they’ll also vary by lender and other factors like your LTV too. The easiest way to find out what the best retirement interest-only mortgage rates available are is to speak to a fee-free mortgage broker.

Can I switch to a retirement interest-only mortgage?

Yes. It is possible to switch a repayment or interest-only mortgage to a retirement interest only mortgage. However, you may have to pass a new affordability assessment with the bank or building society offering the retirement interest-only mortgage.

We would recommend working out what you can afford and reading our guide to making a successful mortgage application before making the switch. That way you boost your chances of being approved.

You should also check if there are and penalties for switching away from your current lender and how much these would be.

How can older mortgage borrowers prove their income?

The bank or building society considering your retirement mortgage application will need to know you can make the repayments. The specific checks will vary between lenders with some accepting different forms of income to others.

If you plan on continuing working beyond the state pension age, some lenders will carry on considering earnings beyond 65.

You’ll also need to provide a company pension forecast, or annuity statement as well as your state pension statement.

How much are retirement interest-only mortgage fees?

Retirement interest-only mortgage fees vary but you may have to pay an arrangement fee, survey and mortgage valuation fees, and a completion fee. Plus you’ll need a solicitor to act for you too. You should allow for £1,000 to £3,000. So it’s important to make sure you get the best deal. By speaking to a mortgage broker, they’ll help you compare different deals including the fees charged so that you can make the best choice.

Should I choose a retirement interest-only mortgage?

Whether a retirement interest-only mortgage is right for you will depend on your circ*mstances. So to find out your options, it’s a good idea to speak to a fee-free mortgage broker who will explain what’s available.

How do I apply for a retirement interest-only mortgage?

With retirement interest-only mortgages, the easiest way to start the process is by speaking to a fee-free mortgage broker. They’ll go over some basic information including how much you would like to borrow and what for. They’ll go through your circ*mstances in detail and recommend a suitable product and help you with the application process and answer any questions you may have.

How popular are RIO mortgages?

According to the most recent figures from the FCA data, the number of RIO mortgages sold between July and September 2021 rose 97.2% to 761, up from 386 in the same quarter of 2020.

Frequently Asked Questions