Updated: March 03, 2022

A Guide to Retirement Interest-Only (RIO) Mortgages

Considering retirement interest only mortgages? They can be ideal for older borrowers! Find out exactly what they are and how to get one in our in-depth guide!

Get Started
Ask A Quick Question

Ask A Quick Question

We can help! We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Interest Only Mortgages Ask us a question and we'll get the best expert to help.

FCA Logo
1 of 3
£
£
£
2 of 3
3 of 3 Send!

No impact on your credit score

Pete Mugleston

Author: Pete Mugleston - Mortgage Expert

Updated: March 03, 2022

A retirement interest-only mortgage (RIO mortgage) is a home loan for older borrowers who want to use the equity in their property to pay off their existing mortgage, consolidate other debt, gift money to a family member or make that big purchase they have always dreamed of. 

In this guide we’ll look at how they work, who they are for and their eligibility criteria to help you decide whether a RIO mortgage is right for you…

What are retirement interest-only mortgages and how do they work?

A RIO mortgage is a retirement mortgage product that lets you borrow money against your property and pay a monthly amount to cover the interest. This way, the amount of debt does not increase over time and you need only pay back the amount you initially borrowed when the property is sold. This could be when you choose to downsize or following a specified event such as your death or move into long-term care.

In the right circumstances, they can be an affordable way to access the equity in your property. They are seen as a safe way to borrow against your asset if mainstream mortgages are inaccessible to you due to age limitations.

Speak to a mortgage expert today

Get Started

Are there any restrictions?

RIO mortgages are usually only available against your main residence and there are restrictions if an existing mortgage was accepted as part of an affordable home ownership scheme, such as Right to Buy or Shared Ownership.

RIO mortgages are not accepted in some areas of the British Isles and some lenders will reject applications for properties that cover more than 10 acres.

Age limits

This product is aimed at older borrowers and is generally available to the over 55s although some lenders set their minimum age at 60. Upper age limits are determined by lenders, not regulation. The older you get, the smaller your pool of potential lenders will become.

Affordability criteria

As you won’t be paying back the capital as part of your monthly payment you can keep the cost of borrowing low. You will usually only need to demonstrate that you can afford to meet the monthly repayments from your pension and any other secure regular income as well as meeting any other existing financial commitments and covering your living costs.

The exact checks vary from lender to lender.

When making a joint application, you will need to prove that each of you can afford the monthly repayments alone should your partner pass away.

If you are on a low income and only own a small percentage of the property, it can be difficult to find a lender. A broker who specialises in RIO mortgages will be able to advise whether you are eligible for any lenders or should look at other options.

How to apply for a RIO mortgage

Applying is relatively straightforward provided you have the necessary documentation and pass the affordability check. The biggest issue you will face is finding the best lender to match your circumstances.

What documentation you’ll need

You will need to be able to provide documents to confirm:

  • Property value – you will typically need a minimum of 50% equity
  • Pension income – company pension forecast/annuity statement/state pension statement
  •  Any other income such as investments
  • The state of the property

Will a credit check be necessary?

Yes, a credit check will be carried out. To ensure you give yourself the best possible chance of success, you should check your credit report before applying so you are fully aware of any issues that might arise and can try to address them.

How a specialist broker can help you

A broker with thorough knowledge of the RIO mortgage market will be able to quickly and accurately assess your circumstances and advise you:

  • Whether a retirement interest-only mortgage is right for you
  • Which lenders will offer you a loan based on your individual circumstances

With so many lenders now offering RIO mortgages and such a vast range of rates, age limits and other criteria, trying to find the right deal without independent advice would be a huge challenge and potentially very costly.

It may surprise you to learn that there is no regulation in place to ensure brokers who advise on RIO mortgages must be qualified to advise on equity release options. This means you could take advice from a broker who does not have expert knowledge of the full spectrum of equity release options. We work with brokers who are fully qualified and can offer a comprehensive comparison of both product types to help you make a fully informed decision.

Lender attitudes to retirement interest-only mortgages

RIO mortgages were brought under standard mortgage rules in 2018 due to an expected increase in demand because of:

  • Greater numbers of people taking debt into retirement
  • The amount of standard interest-only mortgages maturing without means to pay
  • Shortfalls in pension savings

The decision, taken by the FCA, has been widely supported by mainstream and niche lenders with many seeing them as a low-risk lending mechanism.

Who are the top RIO mortgage providers?

In addition to the multitude of specialist lenders offering mortgages to retirees, lots of high street names are increasing their portfolios to include RIO mortgages, including Nationwide and Leeds Building Society.

Despite that, your options are more limited when looking to borrow in retirement so it’s best to find a broker who understands this specialised market and can make sure you get the best deal for you.

Pros and cons

To help you make an informed decision about whether a retirement interest-only mortgage is the right option for you, we’ve rounded up their advantages and disadvantages below…

 Pros

  • Minimise your outgoings to focus on other financial goals
  • Use it for almost any purpose including boosting retirement income or adapting your property for later life
  • Interest rates tend to be cheaper compared with lifetime mortgages
  • You can access the equity in your property while continuing to live in it so you are not forced to downsize
  • Some lenders give the option to repay some of the capital each year
  • Helps ensure you have something to pass on as inheritance

Cons

  • Lending criteria can be strict
  • You must have a stable long-term income
  • Loan to value (LTV) is lower compared with other types of mortgage (typically a maximum of 50% of the property value)
  • Rates are generally higher than those for standard repayment mortgages
  •  Interest rates may be variable or only fixed for a set number of years so payments can increase
  • Your home could be repossessed if you don’t keep up with the repayments
  • There is no protection from falling property prices
  • The capital is repaid from the sale of your property so your family’s inheritance will be reduced

Get matched with a broker experienced in RIO mortgages

As RIO mortgages are relatively new products on the mainstream mortgage market, finding best buy or comparison tables is very difficult anyway and it would take a lot of ringing around or trawling through websites to whittle down the possibilities. Some lenders also offer exclusive deals only available to borrowers who are introduced by brokers.

The best rates are offered to applicants who most closely match a lenders’ ideal criteria. Because of this, when considering a RIO mortgage it’s essential that you take advice from a broker with knowledge of the industry and a track record of finding the best deals according to each client’s unique circumstances.

We work with mortgage brokers who specialise in RIO mortgages, which means they have the knowledge, expertise and lender contacts to make sure you get the best deal. Your application will be assessed according to your needs and credit checks will only be carried out once it has been passed to a lender that is likely to accept it.

Call today on 0808 189 0463 or enquire online to arrange a free, no-obligation chat with your ideal retirement interest-only mortgage broker today.

FAQs

Can I get a RIO mortgage if you have bad credit?

Any bad credit that dates back more than 6 years will no longer be held on record so won’t have an impact on your application. If you have recent adverse credit, you may want to look at other later life lending options. These can be more expensive, though, so it may be worth waiting until the full 6 years have passed. What is right for you will be determined by the value and age of any arrears along with consideration as to how urgently you need the funds.

What is the difference between a RIO mortgage and equity release?

The key difference is in the repayment terms – and this impacts on the total cost of the loan. With a RIO mortgage your monthly repayments cover the interest so, provided you maintain your payments, only the original amount borrowed is settled using the proceeds of the property sale. Some types of equity release product require no monthly repayments but the interest is rolled up each month so the debt grows over time and  a greater portion of the sale proceeds are required to settle the loan.

Can I clear an outstanding mortgage debt by refinancing with a RIO mortgage?

Yes. If you’re reaching retirement and looking to reduce your monthly repayments rather than continue working to pay off the capital sum, a RIO mortgage could be the answer.

Will I be able to remortgage?

Yes. You will be able to remortgage when any fixed term has expired but you will need to pass another affordability check.

Ask A Quick Question

We can help! We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in Interest Only Mortgages Ask us a question and we'll get the best expert to help.

FCA Logo
1 of 3
£
£
£
2 of 3
3 of 3 Send!
Pete Mugleston

Pete Mugleston

Mortgage Expert

About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

Get Started