Retirement interest only mortgages are ideal for people aged 55 and over, who are looking to release some equity from their home. If a traditional mortgage product no longer meets your needs, we can advise you on the next steps. We take a pragmatic approach when lending to older borrowers, taking the time to understand your circumstances and explore a range of different plans best suited to you.
Large Mortgage Loans are adept at recognising the implications of committing to a later life lending mortgage, ensuring that you and the generations to come will benefit from the setup long term. We will go through the underwriting criteria in detail, providing flexible solutions that can be manually underwritten and tailored to suit your personal requirements.
What Are Retirement Interest-Only (RIO) Mortgages?
RIO mortgages allow homeowners to remortgage their existing property or loan, repaying the interest (and not the loan itself) over the term agreed. The terms are similar to a standard interest-only mortgage – the key difference is that the loan itself will usually only be paid off when you pass away, move into long term care or sell your property. This option is particularly attractive to people who either want to help the next generation in their financial future or unlock some of the equity in their home – perhaps to purchase a retirement property – or to stay in their current home for longer.
A RIO mortgage is an interest-only mortgage with no set end date, for borrowers who do not wish to repay capital from their mortgage balance, simply maintaining their interest-only payments.
With a retirement interest only mortgage, you only pay off the interest each month, therefore your monthly repayments will be lower. This means you should be more likely to have something to pass on as an inheritance, or to pay for long-term care.
The Financial Conduct Authority (FCA) loosened the rules in 2018 and separated RIO mortgages from equity release, reclassifying RIO’s as standard mortgages. The accelerated proliferation of this widely attractive product has permitted swathes of older lenders the freedom to be more flexible with their options, while minimising their payments.
Why Would A Borrower Want A Retirement Interest-Only Mortgage?
For those that want to avoid selling their house, or perhaps want to avoid being tied into an expensive loan, RIO mortgages offer a gateway whereby you can stay in your property. RIO mortgages are an attractive option for those considering:
- Releasing cash from your property
- Purchasing a retirement property, or undertaking improvements to your current home
- Staying in your property and paying off interest-only rather than capital, thus reducing monthly payments
- Helping other family members, for example to get on the housing ladder or repay university debts
At What Age Can I Take Out A Retirement Interest-Only Mortgage?
RIO mortgages are aimed at those aged 55 years and over. Pensioners might find them easier to qualify for than a standard interest-only mortgage. While many banks will not lend to borrowers aged beyond 70. But we have access to lenders who take a more pragmatic approach. Bespoke lending through Large Mortgage Loans may be available where age is not the ultimate factor in the decision to lend.
As a society we are all living and working longer, and lenders have adapted, widening their criteria by accepting applications for those retired and in their later life, which, historically they would not have considered lending to.
What Is The Difference Between Equity Release And A Retirement Interest-Only Mortgage?
Retirement interest-only mortgages and equity release schemes are valuable schemes to help older people tap into the value of their property, and access funds. At Large Mortgage Loans we give you the reassurance that the loans we recommend are tailor made for your circumstances – and the confidence that we are working with you to safely realise your personal and financial goals.
The benefit of a retirement interest-only mortgage over equity release is that the amount of equity in your property will not reduce over time.
With an equity release plan, you borrow a portion of your property’s value, but are not required to make monthly repayments (although some terms now permit this). Instead, the whole debt is repaid once you die or move into long-term care, and the property is sold. Cash is released for any purpose, without you having to move home.
How Much Can I Borrow With A Retirement Interest-Only Mortgage?
Your Large Mortgage Loans adviser will review the lending limits offered against the value of your property by the lenders in our portfolio. We work with over 300 specialist lenders to ensure that we obtain the most beneficial solution for your particular circumstances, even if they are complex. We will look at your property value, income and required loan size to ensure that we meet your needs, while ensuring financial security and peace of mind. Up to 65% loan to property value ratios can be achieved.
Why Should I Choose a Retirement Interest-Only Mortgage?
- No proof of income needed With a retirement interest only mortgage there is no need to prove your income as with a standard residential mortgage – you will just need to show that you can afford the interest payments (though some RIO mortgages do allow you to repay capital as well as interest). The interest due is payable by you in full each month, and in this way you always know how much you owe.
- Tax free cash The cash borrowed under a RIO mortgage is completely tax free, and you can spend it in all sorts of ways, such as home and lifestyle improvements. It may be that you wish to help your children to buy their first property, or perhaps you would like to support your grandchildren with their education or even paying off an existing mortgage. Do bear in mind, however, that if you give the money away there may be inheritance tax implications.
- There’s no fixed term Loan times do not tend to be fixed, so you have more flexibility should your circumstances change. You don’t have to repay the loan on a specific date. It’s repaid on your death or when you move permanently into long term care. At this point, the property is sold and the loan repaid. If you take out the loan with someone else, the property isn’t sold until both of you have either died or moved permanently into long-term care.
- The interest rate doesn’t vary The interest rate is fixed throughout your mortgage terms. Payments will be the same amount every month – and interest will not build over the years, which can be the downside of an equity release scheme.
- You have the flexibility to pay more to reduce how much you owe If you want to pay off more than the interest due each month, you have the option to make overpayments occasionally, reducing how much you owe even further. As long as overpayments do not exceed your limits, there are no charges.
- Move home whenever you want to The new home is subject to our usual lending criteria. In other words, assuming it’s a property we would be happy to lend against, you can still move home, transferring your RIO mortgage to the new property.
How Do I Apply For A Retirement Interest-Only Mortgage?
Contact Large Mortgage Loans and we will guide you through the process. Our aim is to keep the process as quick, simple and reassuring as possible, even if your circumstances are complicated.
- Initial enquiry – decide how much you wish to raise with your retirement interest only mortgage. To help you along, you can use our RIO calculator to work out how much you can borrow. Read more about whether you are eligible for a retirement interest only mortgage. We take you through some of the documentation you will need to help your application along;
- Advice from Large Mortgage Loans – we offer personalised advice around what you want to achieve from your RIO mortgage, and will discuss all remortgaging options available to you – we want to ensure that this is the best product for you, to fulfil your objectives and ensure that long term you are in a better financial position. Large Mortgage Loans will undertake an affordability assessment with you, and ensure that your application is likely to be successful, before we seek a quotation from one of our lenders. This essential background work will be followed by a decision in principle and indication of terms;
- RIO mortgage acceptance and detailed quote – Large Mortgage Loans will provide at least one, and usually more, detailed market-leading quotes;
- Valuation – once the terms have been agreed, your independent advisor will arrange for a valuation of the property;
- Legal works – legal work can often be instructed at the same time as the valuation, to minimise any delay;
- Funds provided – You will be able to access your funds and free to enjoy the next stage of your venture.
How Do I Repay A Retirement Interest-Only Mortgage?
As with any mortgage, both the interest and the outstanding capital will have to be repaid in due course. However, with RIO mortgages, the initial monthly repayments will cover simply the interest, and therefore may be more affordable. The outstanding capital will be paid off when the house is sold, which may be when the last borrower moves into long-term care or passes away. Large Mortgage Loans has access to a wide range of financial partners, and can sometimes also offer more flexible options, perhaps allowing borrowers to repay part of the capital as they go along (thereby leaving more for your loved ones to inherit), or offering set repayment dates to fit in with your future plans and resources.
Am I Eligible for A RIO Mortgage?
As part of our personalised service, Large Mortgage Loans will help you to gather the information required by our lenders, in order to submit a successful RIO mortgage application.
The criteria to qualify for a retirement interest-only mortgage include:
- To apply, the borrower must be between 55 and 70 years old
- Loan to property value ratio: 65% of the value of your current property
- No minimum equity required
- Demonstration of lifetime affordability of the interest payments, as outlined below
Income and outgoings taken into account in the affordability assessment may include:
- Pensions, savings and investments
- Company forecast of future pensions
- Details of pension allocated to a partner, should you die before them
- Traditional income from employment need not be included
- Outgoings such as borrowings on loans and credit cards
- Expenses such as buildings insurance and council tax
Mortgage Rates
Low rates are not necessarily the key driver for lending later on in life, but at Large Mortgage Loans we ensure that borrowers have a clear understanding of the monthly payments they will need to make, as well as what will happen in the event of, for example, annual indexation, reduced income after the tax free cash has been taken, or death, where there are joint or multiple applicants. How long you intend to take the mortgage out for, will affect the rate at which interest is charged.
How Much Can You Borrow?
The retirement interest-only calculator below demonstrates how a two-year term agreement compares with a fifteen-year period. The calculator gives an estimate of affordability.
The Best Retirement Interest-Only (RIO) Mortgage Plan
Large Mortgage Loans will talk to you about your circumstances and plans for the future. Our mortgage advisers are here to help you achieve the perfect life balance in retirement. Our qualified, unbiased financial advice allows you to save, grow and spend your funds with peace of mind that it will provide for you as intended.
We are very well placed, with our relationships with over 300 niche lenders, private and high street banks, to assist you in sourcing a suitable mortgage product for your needs.
If you are in later life and considering taking out a mortgage for any purpose, download our helpful guide, request a quote or give us a call today. One of our specialist RIO mortgage advisors will be available to talk through the options most suited to serve your needs.
Think carefully before securing other debts against your home. Home reversion plans and lifetime mortgages are complex products. To understand the features and risks, ask for a personalised illustration.
Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
