Retirement Interest Only Mortgage
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Retirement Interest Only Mortgage
What is a retirement interest only (RIO) mortgage?
A RIO mortgage, as they’re commonly known, is a type of lending aimed at older borrowers, as an alternative to equity release. There are a couple of differences between equity release and retirement interest only mortgages which we’ll go through later on.
Can you get an interest only mortgage at 60?
Yes, absolutely. The minimum age for retirement interest only mortgages generally starts at 55 – so age 60 would be absolutely fine.
What is the difference between a retirement interest only mortgage and equity release?
With a retirement interest only mortgage you pay monthly interest payments, whereas with equity release, the interest is generally rolled up so when you come to repay that loan, the balance is obviously much bigger than when you initially took it out.
Do many lenders offer retirement interest only mortgages?
Yes, there are quite a few lenders on the market now. This type of lending was initially quite niche, and only a few providers were doing it. Now, we’re seeing more and more come on board, so there are plenty to choose from.
Can I switch to retirement interest only mortgage?
Retirement interest only mortgages can be used for remortgaging or purchasing – either of those options are available once you reach age 55.
What are the interest rates for retirement interest only mortgages?
Generally the rates are similar to a standard mortgage. Different types of rates are available, from a two, three or five year fixed to discounted or tracker products.
How much can I borrow on a retirement interest only mortgage?
A retirement interest only mortgage is generally capped by Loan to Value. Across the board a 50% Loan to Value is where many lenders sit, but there are some options available up to 75% Loan to Value.
One of the biggest differences with this type of mortgage is that affordability is calculated individually. With a standard joint mortgage, both applicant’s incomes are combined for affordability. With a RIO, each party has to be able to afford the monthly repayments on their own merit.
You can have a joint mortgage, but lenders need to know that in the worst case scenario, where one of the applicants were to pass away, the other applicant would be able to maintain those payments by themselves.
How do I know if a retirement interest only mortgage is right for me?
Speak to a broker. We will look at the different options available to you. If you’re considering equity release or a RIO, a broker can explore that in detail with you. We will look at the market and your circumstances to see whether you fit the criteria and what the best option is for you.
If you have considered equity release as an option or are thinking about it, a retirement interest only mortgage might be an alternative option for you.
How do I prove their income for this kind of mortgage?
It’s similar to standard mortgages. If you’ve got pension income the lender would like to see P60s and pay slips, plus bank statements. If you’ve got any other income in the background, like savings or rental income, that can be used as well.
We would have a chat with you and let you know early on what kind of documents you’re going to need.
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How would I repay a retirement interest only mortgage?
Repayment is generally sought after a life event – selling the property, a death, or if you were to move into a care home or nursing home.
A retirement interest only mortgage is a lifetime mortgage, so there’s no end date when you’re expected to repay it. However, if one of those events occurs, you would be looking to repay the mortgage with the sale of the property.
What are the advantages and disadvantages of a retirement interest only mortgage?
One disadvantage is the lower Loan to Value. These mortgages are not designed for higher borrowing. They’re aimed at people who have a lot of equity in the property or a big deposit to put into a new home if they’re looking to buy.
There are monthly payments, so if you’re looking for something where you can just take out the finance and not have to worry about a monthly cost, it’s not the option for you.
The individual affordability can be a disadvantage. If one applicant is earning or receiving a pension income that’s considerably more than the other, that may not work for you.
There are a few advantages as well. Your monthly payments are going to be low and there’s no minimum equity. With a standard interest only mortgage, lenders usually want a certain amount of equity to be left over in the property, that’s not a requirement on a RIO mortgage.
The debt’s going to be repaid but there is no end date. You’re not worrying that you have to repay it in a certain number of years, because it’s a lifetime mortgage.
There’s no rolled up interest, so this isn’t going to affect your children’s inheritance. There’s never going to be a point where there’s little equity left in your property after interest payments have constantly been added to the loan.
How can a mortgage broker help? What other advice do you have for people looking at a retirement interest only mortgage?
The best piece of advice is to speak to a broker for this type of mortgage. There are lots of different options available. We take that stress away from you. We will look at all the options on the market and come back to you and explain which one is going to be best for your circumstances.
We’ll find the most competitive rates where you meet the criteria, because a lot of lenders will look at different forms of income in a different way, that’s another way in which we help.
Also, we’re going to assist you throughout the process, as we would with any mortgage. We deal with your solicitors, the lender and keep everybody updated. With this kind of mortgage, that isn’t necessarily considered standard, it’s more important than ever to have a broker there to support you through it.
PLEASE NOTE: Your home may be repossessed if you do not keep up with your mortgage repayments.