3 Benefits of a Retirement Interest-Only (RIO) Mortgage in Later Life
A Retirement Interest Only (RIO) mortgage is a type of loan that is designed for those in the latter years of their lives. As with other Later Life products, RIOs are typically available to homeowners who are aged 55 and over, although some lenders have recently started to consider borrowers from the age of 50.
RIOs are one way to borrow into your retirement years by allowing you to release equity and access the value locked in your home, while you remain living there and retaining full ownership.
Other Later Life mortgages, such as a Lifetime mortgage, may offer similar rates of interest, but a RIO can offer a larger loan to value if it is affordable, up to 75%. This could be key if you need to raise a specific amount, such as if repaying an existing mortgage.
With a RIO, you will pay the full monthly interest, so the outstanding loan will not increase, although there is a risk of repossession if the monthly payments are not maintained.
3 Benefits of a RIO
There are several benefits to a Retirement Interest Only mortgage for those looking to improve their lifestyle or access funds in their retirement. We have compiled three of what we believe are the biggest benefits of taking out a RIO below:
One of the major benefits of a Retirement Interest Only mortgage is that you only commit to pay back the interest every month, not the capital.
RIO mortgages work in a similar fashion to a standard interest-only mortgage in the sense that the borrower is only expected to pay the interest on the loan each month, rather than paying a combination of both interest and a portion of the loan principal. This means that the monthly payments will be considerably lower than a repayment mortgage where you also reduce the capital.
However, unlike a standard interest-only mortgage, a Retirement Interest Only mortgage has an open term, and the outstanding capital is usually repaid from the sale of the property after the last borrower has died or moved into long-term care.
Fixed rates for life
With a Retirement Interest Only mortgage, the interest rate to raise a capital lump sum can be fixed for life.
If you choose a fixed rate alongside the loan’s open term, there will be no future need to remortgage and you can take comfort knowing your monthly payments will not increase.
In a world of economic uncertainty and fluctuating bank rates, a RIO mortgage could prove to be a financially astute way of borrowing and protecting yourself from rising mortgage interest rates, while managing your committed expenditure.
A RIO mortgage allows you to use the funds released for virtually any purpose, so you can use the cash you receive for many objectives, such as lifestyle or home improvements, supporting your family, remortgaging, or to receive care in your home.
As long as the use of funds is not deemed speculative — such as investment in the stock market, a family business or purchasing a Buy-to-Let property, for example — then your objectives for the proceeds from a Retirement Interest Only mortgage should be acceptable.
Choose a Retirement Interest Only mortgage with Henry Dannell
As highlighted above, RIOs offer a great way of realising your dreams and helping you achieve your goals in later years. However, it is important to consider that by reducing the remaining equity in your property, you will also reduce the value of your estate. So, it pays to carefully consider your goals and plans for your estate, while seeking specialist advice before coming to a decision.
Should you wish to discuss a mortgage in Later Life with Henry Dannell, our initial advice is free. Only if your loan completes do we charge a straightforward advice fee of £1,295. Our advice fee is a one-time-only fee for life, meaning that if life changes and you have exhausted your available funds or wish to remortgage, our Later Life advice will be available to you again at any time, with no additional fee.
After paying our lifetime fee, you’ll be able to remortgage or change to any other suitable Later Life mortgage product without paying for advice again, and we will highlight any plan-specific costs to do so.
At Henry Dannell, we advise on a wide range of Later Life products, so it’s worth speaking with one of our specialists to explore your options and learn more.
Please note: Later Life mortgage options include Retirement Interest Only and Lifetime mortgages. To understand the features and risks, always obtain a personalised illustration.