Retirement Interest-only (RIO) mortgages are designed for older homeowners who may not be eligible for a standard mortgage or remortgage. They are also popular with people who are coming to the end of an interest-only mortgage and are unable to pay off the remaining capital.
These products allow you to only pay the interest each month, much like a regular interest-only mortgage, but instead of having to prove how the remaining capital will be paid back at the end of the term, the lender will only recoup the loan when the property is sold, which can be after you die or move into permanent care.
RIO Mortgages can also be used in a similar way to Equity Release, as both products allow you to access some of the equity in your home to live a better life in retirement. As life expectancy continues to grow, lenders have developed these products to allow older homeowners to stay in their homes, release equity as cash, and reduce the financial burden of funding a traditional mortgage in retirement. In this guide, we’ll explain how RIO Mortgages work, who they’re for, and how they’re different to Equity Release.
Is A RIO Mortgage Right For Me?
There are two types of people who may wish to take out a RIO Mortgage. A RIO Mortgage can be used as a replacement for a traditional mortgage – either because you want to pay off your existing repayment mortgage to reduce monthly payments, switch from your existing interest-only mortgage so you can continue living in your home, or buy a new property when you aren’t able or willing to take out a standard mortgage.
The other reason you may want to consider taking out a RIO Mortgage is if you wish to access some of the equity in your home. You can release money to fund home improvements, a holiday home, or to top up your retirement income. However, if your main goal is to release equity without having to pay the interest back monthly, you may want to look into Equity Release instead – we discuss the difference between RIO Mortgages and Equity Release below.
Am I Eligible For A RIO Mortgage?
Some lenders offer RIO Mortgages to people aged 50 and above, but if you’re over 55 you’ll have plenty more products available to you. You’ll need to pass affordability checks, but these will be less stringent than a regular mortgage because you’ll only have to prove that you can afford the interest each month. You won’t have to show how you plan to repay the loan capital as this will only be repaid once your property is sold, which can be when you die or move into permanent care.
How much you’ll be able to borrow and at what interest rate will vary from lender to lender, so it’s important you speak to an experienced impartial mortgage advisor to find the right deal for you.
RIO Mortgage vs Equity Release (or Lifetime Mortgage)
Equity Release has evolved over the years into a fair, flexible, and regulated way of accessing the equity in your home. The newer type of Equity Release, called a Lifetime Mortgage, allows you to release up to 60% of your equity as tax-free cash, and many older homeowners are turning to these products to live a better life in retirement.
The main difference between a RIO Mortgage and a Lifetime Mortgage, is that with a Lifetime Mortgage you can choose for the interest to roll up into the loan, meaning you won’t have to pay any monthly repayments. The loan will grow overtime, but you can live in your home until you die or move into permanent care and you’ll never go into negative equity. You can also choose to pay off the interest as you go to protect your remaining equity if you wish.
As a Lifetime Mortgage is based purely on the value of your home, you won’t have to pass any affordability checks because if you can’t afford to the interest it can roll up into the loan. However, with a RIO Mortgage you will have to pass affordability checks to prove you can cover the monthly interest until the house is sold. We can help you decide which product is right for your situation and we have a team of qualified Equity Release advisors ready to help you if you decide to go down this route.
The Bottom Line
RIO Mortgages are another great product designed to help older homeowners get the most out of their homes in retirement without the financial burden of a standard mortgage. You can use them to remortgage your existing property, buy a new property, or release equity from your home as tax-free cash. Equity Release as a Lifetime Mortgage may be better suited for some people, especially if you want to eliminate monthly repayments, and we can help you decide which route is right for you.
We’re impartial mortgage advisors with over 30 years’ experience dealing with mortgages for the over 50s and retired. As the criteria for each lender varies so widely, it’s important you seek the right advice to make sure you find a deal that suits your needs perfectly and to ensure your application is successful. We have specialist advisors who deal specifically with RIO Mortgages and Lifetime Mortgages, so no matter what your situation, we’ll be able to help you make the right choice.
Book in for your FREE consultation to get going quickly – this can be done remotely via phone or video call if you’d prefer. We look forward to helping you!
