News & Blog

Retirement Interest Only (RIO) Mortgage

21st May 2019

The later life lending marketplace is not only seeing a raft of new lenders, there are also new product options to give customers increased choice.

Retirement Interest-Only mortgages (RIO) are one such example and are a relatively new introduction. They provide an opportunity to take out a new mortgage into your retirement years.

A RIO requires borrowers to pay the monthly mortgage interest until they die, sell their home or go into long-term care. At this point the loan is repaid by selling the home. So, you need to be confident that you have an income stream to meet this cost.

The upside of paying the monthly interest, is that you’ll avoid any interest roll-up. Also, with a RIO the payments are limited to the interest charge, so you would not be required to start paying off some of the capital too.

However, this may be the case with some Later Life mortgage products, which are also tailored to meet the needs of this sector. For example, a Retirement Capital and Interest mortgage (RCI) allows you to borrow money released from your home. However, by the end of the term you need to pay off all the capital borrowed, plus interest.

Affordability for a RIO is a big consideration, particularly if you apply jointly, as both individuals would be assessed in light of possibly reduced pension payments should one partner die.

How they are set up

With a RIO the loan-to-value could go up to around 60% (far more than an equity release plan, particularly for the borrowers aged 55 to 65), with the option of fixed, variable, and discounted rate deals. The minimum age at which you could take one out varies amongst lenders from 55 up to starting at around 65.

Part of the drive to develop this offering is a recognition that nearly one in five of all standard mortgages are already on full interest-only and part capital repayment deals, with many coming to the end of their term over the next few years.

(Source: Financial Conduct Authority, January 2018)

New opportunity for some

Some older potential borrowers may have previously been excluded from further borrowing because of their age, despite having an income stream which would normally be acceptable. In this instance, a RIO meets that need, by accepting that the sale of the property is a viable repayment method.

Lasting Power of Attorney

As clients taking out a RIO would have to pay interest across the whole term period, it may make sense to have a Lasting Power of Attorney (LPA) in place, which would protect them, and their family, if they can no longer manage their finances. This will allow your family members to take care of your financial affairs if you become mentally incapacitated. Also, some lenders offer lower interest rates if you have an LPA in place.

Retirement Interest Only Mortgage vs. Equity Release

To some extent it’s not simply opt for one or the other, as some may take out a RIO when they have the disposable income, meaning they can meet the affordability requirements.

Later in life, their situation could change. In which case, an equity release plan, where no further monthly payments are needed, with no affordability hurdles to counter, may be the better solution. 

Understandably, it’s all pretty complex, so please do get in touch.

The content of this article is for general information only and should not be considered advice.  Professional advice relating to your individual circumstances should always be sought prior to making any decisions or taking any action. Equity Release is not suitable for everyone. You should seek advice to ensure that you fully understand all implications for you and your home and for anyone who might otherwise inherit the property. Your home may be repossessed if you do not keep up repayments on your mortgage. All details were correct at the time of writing.  

Reference – BL061 – May – 2019


Call us and one of our team will be happy to help or arrange a call back
Meet Our Team

Speak to a practical and experienced financial advisor

Get in touch with a member of our team

Meet Our Team
Get in Touch

Find out more about our range of service.

For further details please contact us.

Get in Touch
Visit Us

We have locations in both London and the North East

Newcastle | Richmond | Northallerton | London | Swanley | Hertfordshire | Camberley

Visit Us

Regulatory Statement

Gale and Phillipson Investment Services Ltd, Gale and Phillipson Advisory Services Ltd, Gale and Phillipson General Financial Services Ltd and Gale and Phillipson (SE London) Ltd are all authorised and regulated by the Financial Conduct Authority (Reference Numbers 431387, 142752, 195080, 195522).  Gale and Phillipson (Herts) Ltd is an appointed representative of Gale and Phillipson Advisory Services Ltd.  Gale and Phillipson (Surrey) Ltd is an appointed representative of Gale and Phillipson Investment Services Ltd. (Reference Numbers 615821, 703337).All companies trade under the name Gale and Phillipson and are registered in England and Wales numbers 05409822, 02232959, 03751076, 04077157, 08864945 and 04823391.  Registered office for all companies is Gallowfields House, Fairfield Way, Richmond, DL10 4TB. Gyr Financial Consulting Limited is an appointed representative of Gale and Phillipson Advisory Services Ltd which is authorised and regulated by the Financial Conduct Authority. (Reference numbers 811525 and 142752 respectively) Gale & Phillipson Advisory Services Ltd trades as Gale and Phillipson. Registered in England and Wales number 11334836. Registered Office: Level 1 Brockbourne House, 77 Mount Ephraim, Tunbridge Wells TN4 8BS.

Google Analytics Alternative