Retirement interest-only (RIO) mortgages were first released in March 2018 and designed to help older homeowners from the age of 50, raise cash from their property on a residential mortgage basis. They heralded the relaxation of FCA rules on borrowing into retirement since the financial crisis in 2007-08.
RIO mortgages are used for many purposes - the main one being repayment of a current mortgage, whether that's interest only or capital and interest. When lenders ask for repayment near redemption date, if homeowners have no means to repay, a RIO mortgage will allow you remortgage, thereby extending the term over your lifetime.
RIO's start from age 50 or 55 and require an income that supports affordability of the mortgage, both now & into retirement. For joint plans, the lowest earner must be able to support the mortgage in their own right to qualify. RIO's can be repaid when the last homeowner dies or moves into long term care.
It’s important to note that a RIO is a form of residential mortgage and if you cannot make your monthly interest repayments, your home could be repossessed. As with all residential mortgages, you will also have to pass the lenders affordability tests, to ensure that you have the means to make your monthly repayments – both now and in the future.
As with other types of later life lending, the principle criteria that will determine how much you can borrow on a retirement interest-only (RIO) mortgage are your income(s), the value of your property, the age of the homeowner(s) and UK location.
While the calculator below will give you a rough idea of the maximum amount you can borrow with a retirement interest-only mortgage, this only acts as a guide, as additional income and credit checks will be required to gain a more accurate result.
This will depend on your age, income and the mortgage/equity release plan you are considering. Your Equity Release Supermarket adviser will be able to explain this to you fully.
The FCA removed requirements for advice for RIO's, which is however mandatory for lifetime mortgages and for the protection of consumers. It is however advisable, so that you are able to consider all your later life lending options.
As you are paying off the monthly interest by direct debit with a RIO, only the initial amount borrowed is repaid when the mortgage ends. Lifetime mortgages by design compound their interest, however they now have options that could achieve the same, if not better outcome: interest only and voluntary payment plans.
Since their launch in 2018, RIO mortgage rates have settled down and more comparable with residential mortgages. They offer a mixture of variable, discounted and fixed rates. Fixed rates can operate over the short term and even extend over a lifetime basis.
RIO mortgages have fixed early repayments charges which are determined by the length of the fixed rate taken out. For example, on a 2-year fixed rate RIO the likely early repayment charges (ERC's) could be a maximum 2 years. The minimum ERC's for a lifetime mortgage are currently 8 years in comparison.
Because of this, if you don’t meet your monthly payments, your home may be repossessed. This can't happen with a lifetime mortgage.
To qualify lenders will conduct stress testing on affordability - both now and into retirement by requiring evidence such as P60’s, state pension and investment statements, pension projections, SA302’s, and buy-to-let rental income.
Lenders want to know that if one of you dies, then the surviving partner can continue to meet the monthly mortgage interest repayments. Hence joint borrowers must pass affordability criteria individually. If not the mortgage would be declined.
Unlike lifetime mortgages, RIOs tend to have fixed rate terms which are typically 2-5 years. Hence, when your fixed rate term expires you will have to go through the expense of remortgaging again to take a new deal.
Unlike lifetime mortgages, RIO mortgage rates are typically not fixed for life and so the interest rate you pay in the future may be more than it is now (though conversely it may be less).
These are retirement mortgages for the 50+ consumer, based on income, credit rating and affordability. Your home may be repossessed if you do not keep up repayments on a RIO mortgage. To understand their features, benefits and risks, please contact Equity Release Supermarket for your personalised, key facts illustration. All RIO quotes can be tailored to your own circumstances and you are under no obligation to proceed.