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Retirement Interest Only

These are a relatively new scheme, for those that can demonstrate a regular and significant income into retirement, allowing you to have a traditional mortgage on an Interest-only basis – so the monthly interest cost is paid by your income, and the balance of the mortgage remains the same. The Mortgage will need to be repaid by a particular date, typically 80th Birthday but that will differ between lenders.

When the mortgage has completed its full term, the mortgage will need to be repaid. This may be from own resources or downsizing to a cheaper property.

Such facilities often include an overpayment facility, and may include a free basic valuation and help with the costs associated with the remortgage.

Features

Retirement Interest Only Schemes (RIO) are designed for those with good retirement income, and include the following features.

Monthly Interest Payments

These Mortgage schemes require you to be able to show you can afford monthly interest payments, either from investment or pension income. This means that the Mortgage balance is not increasing, so it protects your estate value.

Affordability Assessed

The amount you can borrow is linked to what you can afford, rather than a set % based on your age – this could allow you to borrow more than a more conventional Equity Release Scheme.

Overpayments

You can choose to make lump sum payments whenever you want – just check for the annual overpayment allowance , which is typically 10% a year but will be different with each lender and scheme.

Scheme Considerations

Unlike more traditional Lifetime Mortgage and Home Reversion Schemes, by settling the mortgage interest cost each month the amount you are borrowing doesn’t increase. As such, you maintain the level of equity in your property, and look to benefit from future property values.

The property remains yours throughout the term, just like a ‘normal’ Mortgage.

There is no reason why you cannot consider other such schemes once a RIO Mortgage expires. This way, you can benefit from having more equity at an older age, giving you the potential to release more funds.

RIO Mortgages are Affordability tested, so what you can borrow is limited to the level of your income and expenditure. Other schemes may allow you to borrow more.

A number of the RIO Mortgages have a set end date, so they will need to be repaid – other schemes have no expiry date set, and will be repaid on death or on long-term care

Mortgage Calculator

What you can borrow on a RIO Mortgage is determined by a more complex affordability assessment. Please get in touch with Essex Home Finance with details of your personal income(s) and current expenditure, and we will assess what you can raise with such a facility.

Summary

RIO (Retirement Interest Only) Mortgages are an ideal solution for those clients who have a good income (typically pension), enough to service a mortgage plus normal day-to-day costs. These facilities give you the ability to borrow whilst retaining your equity, allowing you to hopefully benefit from future increases in value.

As always, it is recommended you speak to an Adviser that is able to advise from all of the different Equity Release Mortgage Schemes, to ensure you get the right advice for your individual circumstances.