Designed to help you borrow money in later-life, retirement interest-only mortgages can be an alternative way to remortgage in your retirement or release cash from your home. Here’s what you need to know.
What’s in this guide
- What is a retirement interest-only (RIO) mortgage?
- Who can get a RIO mortgage?
- How does a retirement interest-only mortgage work?
- What’s the difference between RIO and lifetime mortgages?
- Can I remortgage?
- How to get a retirement interest-only mortgage
- Finding a mortgage broker or equity release specialist
- What to do if you can’t afford the interest on your RIO mortgage
What is a retirement interest-only (RIO) mortgage?
A retirement interest-only mortgage - also called a 'RIO mortgage' - is a special type of home loan if you’re an older borrower (over 50) whose needs aren’t met by a standard mortgage.
It can get harder to get a new mortgage as you get closer to retirement age, so a RIO mortgage can help by:
letting you mortgage your home in later life, or
providing an alternative to equity release.
It’s similar to a lifetime mortgage where the loan is usually only paid off when you sell the house, die or move into long-term care, but you don’t have the risk of compound interest.
Who can get a RIO mortgage?
Lenders set their own rules on who can apply for a retirement interest-only mortgage.
You might need to:
be a minimum age, typically over 50 or 55, but some lenders have no lower age requirement
be mortgaging a property that is your main home
have a minimum amount of equity in your home
- prove you can afford the monthly interest repayments, now and after retirement.
Explore all your options before applying and find an FCA-registered financial adviser who specialises in retirement planning.
How does a retirement interest-only mortgage work?
Like a standard interest-only mortgage, a RIO mortgage has two parts: the interest and the capital (the loan amount).
Your monthly repayments cover the interest on the amount you borrowed, but the actual loan is usually only repaid when you sell your home.
Some RIO mortgages do state a set time to repay the money. If you’re still living in the home when you reach the end of the mortgage term, you will need to repay the loan at that point.
Always check the details before agreeing to a RIO mortgage:
Most lenders don’t apply a time limit to repay your loan before you retire, but some will.
Some lenders let you pay extra towards clearing the loan capital. This is optional but could mean you have less to repay after the property is sold.
Advantages and disadvantages of a RIO mortgage
Pros
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You’re more likely to have something to pass on as inheritance compared to a lifetime mortgage.
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Helps you free cash to fund retirement or other needs.
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It can be cheaper than a lifetime mortgage as there’s usually no option of ‘interest roll-up’ (where interest builds up increasing the overall debt).
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It can offer flexibility as some lenders have reviewable products (at 2, 5, 10 years) so you’re not locked into a rate for life and can avoid future early repayment charges.
Cons
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You still need to pass mortgage affordability checks to show you can afford the interest repayments.
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What you can borrow is based on your retirement income and LTV (loan to value) of the mortgage – lenders may offer less than a standard mortgage.
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Fees could cost up to £3,000.
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Your home is at risk if you do not keep up the repayments.
Your home might be sold off to repay the loan. This might not be true for some, but as with any interest-only mortgage you need to have a plan in place for how you’ll repay the loan.
Always get advice and discuss the pros and cons for your situation. Read our guide on Choosing a financial adviser.
What’s the difference between RIO and lifetime mortgages?
Both can release equity from your home, but there are differences between the two mortgages.
RIOs may allow you to borrow a larger proportion of your home than a lifetime mortgage. This is because you make payments to maintain the balance, reducing the risk of negative equity. If you can afford to, a RIO may allow you to borrow up to 50-60% of the value of your home at age 50, while a lifetime mortgage will likely only offer you 10-20% at age 55.
Applying for a RIO mortgage might be harder because you need to show you can afford the payments.
With a RIO mortgage, you pay the interest each month. With a roll-up lifetime mortgage, you don't have to make monthly payments, so the interest can build up and increase what you owe.
The minimum age varies, but you usually can be younger to apply for a RIO mortgage.
You must speak to a qualified equity release adviser to get a lifetime mortgage.
Can I remortgage?
Yes, it’s possible to remortgage with a retirement interest-only mortgage.
You may have to do another affordability assessment if you switch lenders or want to increase the size of your mortgage, which could be difficult for some people.
Find out more in our guide Remortgaging to get the best deal.
How to get a retirement interest-only mortgage
Retirement interest-only mortgages can be offered by traditional mortgage lenders, including high street banks and building societies.
If you’re coming towards the end of your current interest-only mortgage and want to stay in your home, talk to your lender to see if they’ll extend your mortgage term into retirement.
Finding a mortgage broker or equity release specialist
Talk to an independent mortgage broker or equity release adviser about your options. They don’t need to have an equity release qualification to help you find a retirement interest-only mortgage.
An independent adviser can see what mortgages are available and if they’re suitable for your situation. There’s usually a fee for their advice.
You can find a regulated mortgage adviser on these websites:
It’s also a good idea to choose a firm that’s a member of the Association of Mortgage Intermediaries (AMI)Opens in a new window, the professional body for mortgage intermediary firms.
Discover the right people to talk to about homes and mortgages in our guide Buying and selling your home: find a professional.
What to do if you can’t afford the interest on your RIO mortgage
If you’re struggling to make your monthly repayments, talk to your mortgage lender about your options as soon as possible.
You might be able to change to a lifetime mortgage where you can opt out of monthly repayments, but this will cost you more over time due to compound interest.
If you’re worried or have missed one or more mortgage payments, use our Debt advice locator tool to find free and confidential debt advice online, over the phone or near to where you live.
There are other options available if you’re struggling to pay your mortgage – see our guide Help with mortgage payments.