Interest Only Mortgages In Retirement

As you approach retirement age, you might struggle to renew your interest-only mortgage, but we can help
 

Even if you are consistently meeting your repayments, the older you get, the harder it becomes. With new (and potentially more suitable) products out there, it might be wise to consider a new way to pay your mortgage.

What is a Retirement Interest Only mortgage?
 

A Retirement Interest Only (RIO) mortgage is essentially an interest-only mortgage for pensioners. The loan is secured against the value of your property. It’s very similar to a standard interest-only mortgage, with a few crucial differences.

Firstly

An RIO mortgage does not have a fixed end date that the mortgage must be paid off by. The loan will only be paid off when the property is sold, you die, or you move into long-term care. This is somewhat similar to Equity Release schemes (such as a lifetime mortgage).

However, a lifetime mortgage does not always require monthly repayments. They often roll the interest up and add it to the total loan value. This can mean a hefty payment at the end of the loan. 

Or, in other cases, you can opt for sporadic capital repayment. However, as they are generally inconsistent, there’s a good chance the payments will be higher. 

An RIO requires you to make regular monthly repayments, like a standard mortgage, and your interest is distributed within these payments. This means your repayments will be generally lower than other mortgage types. Your interest rate is fixed and won’t increase over time.

You might want to pass more of your property to your loved ones as an inheritance. Some RIOs offer you the option to pay off some of your capital through these payments too.

Secondly

The application process for an RIO is much less rigorous than a standard mortgage. These products have been designed to make it easier for the older generation to secure loans. This means that you will undergo different affordability checks. 

You will only have to prove that you can afford to pay off the interest each month, not the loan itself. They allow you to borrow against your property, giving you a much higher chance of being accepted.

What are the benefits of a Retirement Interest Only mortgage?
 

There are several benefits of securing an RIO mortgage, including:

• More lenient affordability checks and simpler application process
• Increases likelihood of being able to pass the property down as inheritance
• Not a fixed-term contract
• Unlike with equity release, no worries about interest roll-up
• Generally cheaper when compared to alternatives
• You can pay off the outstanding debt by unlocking some equity in your property
• You can overpay up to 10% of the loan amount every year without incurring an Early Repayment Charge.

As advantageous as this sounds, it is always advisable to talk to a reputable mortgage broker before making any big decisions.

How much can I borrow with Retirement Interest Only mortgages?
 

As ever, this will vary on a case by case basis. It depends on your financial situation and your lender. The maximum you can borrow sits at around £500,000, and the minimum at £10,000.

Generally speaking, you’ll be able to borrow less on an interest-only loan than a loan that is repaying capital. This is because lenders see interest-only loans as a higher risk investment.

Am I eligible for a Retirement Interest Only mortgage?
 

If you are over 55 and live in England, Wales or mainland Scotland, you could be eligible for an RIO. You should also be confident that you could afford the monthly repayments comfortably on a long term basis.

Your property needs to be worth £100,000 or more to qualify for this type of mortgage.