Leanne Macardle

Leanne Macardle

Editor
Published: 29/01/2019

At a glance

  • RIO mortgages are an alternative to equity release or downsizing if your mortgage has matured and you are unable to repay the capital.
  • RIO remortgages enable you to take out a new arrangement in which you only need to repay the interest on your new mortgage.
  • When the borrower dies or moves into care, the property is sold to repay the mortgage.

If you're approaching retirement and still have an interest-only mortgage you're not sure how you'll pay off, you now have another option to consider – taking out an interest-only retirement (RIO) mortgage. A possible alternative to equity release and a way to clear your current mortgage debt without needing to downsize, a RIO mortgage works in a similar way to traditional interest-only deals and can be very helpful in obtaining a mortgage in retirement. So, is now the time to consider one?

What are Retirement Interest-Only mortgages?

RIO mortgages allow homeowners to remortgage their existing loan under similar terms to their current arrangement, meaning they only need to repay the interest for the term of the loan – which can be a lot more achievable for those on a pension income. Then, when the borrower dies or goes into care, the property will be sold, and the mortgage repaid with any additional value in the house forming part of your estate.

However, even within this area, providers are becoming increasingly flexible. In the months since such loans have been widely available – it was only in April last year that the regulator relaxed the rules and separated RIO mortgages from equity release, and widened the appeal of such loans in the process – numerous providers have got in on the action and are offering a wide range of options, with some allowing borrowers to repay part of the capital as well (thereby leaving more of an inheritance to loved ones) and others offering set repayment dates.

Many big-name lenders now offer these retirement mortgages, giving peace of mind to those who would prefer to borrow from a high street bank, building society or mutual.

Ultimately, RIO mortgages could be a great option for those unsure how they're going to repay their interest-only mortgage debt, but as with any mortgage decision, it’s important to get impartial expert advice from a financial advisor before committing yourself.

Pros and cons of RIO (Retirement Interest-Only) mortgages

  • Your monthly repayments are normally cheaper than with alternative repayment mortgages.
  • You can stay in your home with the property being sold after you die or move into long-term care to repay the loan.
  • Some deals include the ability to repay some capital too, enabling you to leave an inheritance to loved ones.
  • This type of mortgage removes the worry of repaying the capital sum owed in retirement.
  • The mortgage lender will have the right to repossess and sell the property when you move into care or die.
  • It may be difficult to change mortgage provider or move home.
  • You are not protected from short-term dips in house prices.

Moneyfacts tip

Moneyfacts tip Leanne Macardle

Getting the right independent advice is essential. You can speak to our preferred advisers at Premier Financial Group to get started and see if you should consider this later life borrowing solution.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

happy couple holding up a key

At a glance

  • RIO mortgages are an alternative to equity release or downsizing if your mortgage has matured and you are unable to repay the capital.
  • RIO remortgages enable you to take out a new arrangement in which you only need to repay the interest on your new mortgage.
  • When the borrower dies or moves into care, the property is sold to repay the mortgage.

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