Are Retirement Interest Only (RIO) Mortgages a Good Idea?
Are Retirement Interest Only (RIO) Mortgages a Good Idea?
Lifetime mortgages are available to persons aged 55 and over. They release equity from your home, creating a loan against the value of your property that grants you tax-free money – paid in a lump sum or instalments.
Retirement Interest Only mortgages, or RIO mortgages, were introduced in 2018 as a way for older people and retirees to maintain a mortgage securely without an end date. However, there are many options for mortgages during retirement, so is a RIO mortgage a good idea?
We’re here to help. At Hansford Bell, we believe in a holistic approach to finances, where all your assets work together for a synergistic effect. Mortgages are no exception to this, and we’ve put together this article to explain what RIO mortgages are and when they’re beneficial.
Are you concerned about your mortgage with regards to retirement? Get in touch to discuss your situation in a relaxed and friendly environment.
Different Mortgages for Retirement
There are two main types of mortgages that you should consider for retirement: Retirement Interest Only (RIO) mortgages, and lifetime mortgages.
We’ll go into what lifetime mortgages are and what they have to offer a little later on, but for now we’ll focus on what a RIO mortgage is and how they’re repaid.
What is a Retirement Interest Only (RIO) Mortgage?
A RIO mortgage is one of the options available for retirees. It only requires you to pay the interest on your mortgage each month, meaning the total amount owed will remain the same. These repayments last for a fixed amount of time as discussed with your mortgage provider.
Due to their nature, retirement interest only mortgages are only available to:
- People over the age of 55
- People who are retired
- People who are planning to retire soon
This makes RIO mortgages a good option to consider for people who are considering retirement and want to work towards lowering their monthly expenditure.
One thing to take note of: before you’ll become eligible for a RIO mortgage, you must first prove to your lender that you’ll be able to make the monthly interest payments, alongside passing affordability checks.
Repaying a RIO Mortgage
When you’re paying for a retirement interest only mortgage, you will only be paying the interest on the amount you owe each month. This means the total sum of your mortgage will not change with your repayments.
Later on, the money from selling the house will typically go towards paying off any outstanding mortgage you may have.
You may also be able to pay off some of your actual mortgage alongside the interest payments, depending on the deal. Before you do this, you’ll first need to discuss with your lender. It may also be useful to talk to a financial consultant to help you determine what the right course of action may be.
Should you pay off your mortgage or invest for retirement? Find out here >
The Pros and Cons of a RIO Mortagage
When considering whether or not to choose a RIO mortgage, it is a good idea to understand what the pros and cons may be. This puts you in the best situation for getting the deal that’s right for you. While we’d always suggest talking to an expert, we’ve put together a list of some of the key benefits and downsides to a RIO mortgage for you to consider.
Pros of a RIO Mortgage
If you take out a RIO mortgage, you may benefit from:
- Paying off debts
- Supporting your family
- Funding your desired lifestyle
- Renovating and improving your home
- Going on holiday
The benefits you can receive from a RIO mortgage are as broad as the ways you want to spend your money, and releasing equity via this method can give you a great amount of freedom with which to use your locked-away wealth.
Cons of a RIO Mortgage
Despite the numerous potential benefits of RIO mortgages, it is still good to consider the possible disadvantages.
For example, to qualify in the first place, you’ll need to have a suitable source of consistent income with which to pay the interest on your mortgage.
As taking out a RIO mortgage involves reducing the equity in your home, this means you may end up with less to leave to your family and loved ones. This can be furthered still by repayments of the loan that you’ve taken out, which is typically taken from your remaining equity in the property.
You can find the mortgage that’s best for you by discussing with a trusted advisor – contact us today.
RIO Mortgages vs Lifetime Mortgages
We’ve already spoken a lot about RIO mortgages, so we’ll just briefly outline what a lifetime mortgage is before we get into their differences and use-cases.
A lifetime mortgage is a property-secured loan that’s designed to benefit older people that are close to retirement. It allows those later in life to utilise the wealth that previously went towards their home, without having to downsize or change their lifestyle.
When is a RIO Mortgage Best?
A RIO mortgage is intended for people older than 55, people who are retired, or people who are planning their retirement. They’re best used by mature people looking to mortgage their home in later life or who want a different option to equity release.
A RIO mortgage may be the best option for you if:
- You want to release equity held in your mortgage for your children, grandchildren, and loved ones.
- You’re intending on making significant home improvements or enhancements to your lifestyle.
- You’re after an option that won’t alter your living circumstances at the end of a current-standing interest only mortgage.
These are just some examples, but there are plenty more ways in which you can leverage the equity release and fixed monthly repayments from a RIO mortgage. Consider the benefits yourself or get advice from responsible financial consultants.
When is a Lifetime Mortgage Best?
A lifetime mortgage is only offered to people aged 55 and above. There are usually no upper limits on age – unless it is a variable rate lifetime mortgage – so it should, as its name suggests, last you for life. The minimum amount you may borrow is £10,000.
A lifetime mortgage is a great way to renovate your home, deal with care costs, make large purchases, or assist your children and grandchildren in buying homes of their own.
Some of the key benefits of a lifetime mortgage are:
- Tax-free cash
- No negative equity
- Fixed interest rates
- Flexibility
Find out more about lifetime mortgages in our full article on how they work >
Mortgage and Financial Advice From Hansford Bell
A RIO mortgage can be a great way to free up equity in your home, providing benefits to enhance your lifestyle or provide financial assistance to your loved ones. Before making the decision, it can be advantageous to first discuss your options for mortgages in later life and retirement with a financial advisor.
Get top-tier financial advice from experts you can trust. Contact us at Hansford Bell today for a free initial consultation, see our services on mortgage and finance, or find out more with some related articles below.
Discover more mortgage advice in our article on the impact of negative equity >
Develop a holistic view of your finances with our article on financial life planning >
Equity Release may involve a Lifetime Mortgage or Home Reversion Plan. To fully understand the features and risks, please ask for a personalised illustration
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