Retirement interest-only mortgages, also known as RIO mortgages, are a unique kind of mortgage product aimed at borrowers over 55.
While they won’t be right for everyone, in some cases they can be a really useful way of taking out a loan secured against your home, which you can use for most purposes, including paying off your current mortgage.
In this article we’ll explain the criteria you’ll need to meet when applying for a RIO mortgage, and some of the factors lenders will take into account when deciding whether to accept your application.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
How do RIO mortgages work?
As mentioned, a RIO mortgage allows you to take out a loan against a property that you currently own. Rather than repay the loan amount each month (known as the ‘capital’) as well as interest, you only repay the interest you owe, which prevents it from rolling up over time. This means the amount you owe won’t increase. There is no fixed term or end point on a RIO mortgage, meaning the capital is typically repaid either when you die or if you move permanently into long-term care, usually by selling the property.
RIO mortgages can be thought of as sitting somewhere between a standard interest-only mortgage and an equity release plan. With an interest-only mortgage, you pay back only the interest on the loan each month until the end of the term, at which point you pay back the capital, usually by selling your property. With an equity release plan, on the other hand, there are no monthly repayments at all (although some plans allow repayments if you want to make them) but also no fixed term, meaning the capital and interest is all paid off when you die or move into care.
Opting for a RIO mortgage means that you don’t have to worry about what you will do when the mortgage term ends (because there isn’t one), but also that your next of kin won’t have to worry about paying off the interest on your mortgage as well as the capital, as you will have been doing this each month.
You can read more about how these kinds of mortgages work in our article How retirement interest-only mortgages work.
Am I eligible for a RIO mortgage?
RIO mortgages are generally designed for borrowers in their 50s and 60s. Most lenders will have 55 as a minimum age for their RIO mortgage products (though this can vary and some have a lower minimum age of 50). They also require that the property be your main residence, so you wouldn’t be able to get a RIO mortgage on a holiday home or a buy to let property, for example.
Other criteria can vary depending on which lender you go to. A common requirement is that you need to have a certain amount of equity in the property, or that the property needs to be worth a certain amount, with the minimum thresholds also varying between lenders.
As with most kinds of mortgage products, you’ll need to be able to show how you plan to make the mortgage interest repayments as well, and the lender will likely set out a minimum income requirement based on how much you intend to borrow. This can sometimes be tricky for older borrowers to meet, particularly for those approaching or recently past retirement, as retiring tends to result in a reduced income. Affordability will also be ‘stress-tested’ to ensure that borrowers will still be able to afford payments if interest rates rise.
It’s important to do the maths carefully and figure out your expected income in retirement so that you know you’ll be able to keep up with repayments. Read more in our article How can older mortgage borrowers prove their income?
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
As with any kind of mortgage application, you will also want to ensure that your credit score is in good shape. Having a poor credit history can severely reduce your chances of having your application accepted, even if you are confident in your ability to make repayments. If you have an existing mortgage that you’ve been paying off diligently, along with any other loans you might have, then your credit score will probably be good. However, it may be worth checking your score using a free checking service such as ClearScore or Experian before you apply for a RIO mortgage so you can see if there are any areas you might be able to improve on. If you’re concerned that your credit score might need a boost before you apply for a mortgage, read our article on Seven steps that could improve your credit score.
Find out more
To learn more about RIO mortgages and whether they might be a suitable option for you, check out our article What are the pros and cons of a retirement interest-only mortgage? Or, if you think equity release could be the way forward for you, learn more in our article Equity release – what is it and how does it work?
Rest Less Money is on Instagram! Check out our account and give us a follow @rest_less_uk_money for all the latest Money News, updated daily.