RETIREMENT INTEREST ONLY MORTGAGE (RIO MORTGAGE)
A new breed of interest-only mortgage for older people is starting to take off, the retirement interest only (RIO) mortgage.
Interest-only mortgages became virtually extinct following the credit crunch and were once branded a ticking timebomb. During the past few years some older homeowners with these mortgages have found themselves in a position where High Street lenders are demanding the loan back. This has meant that people have been forced to sell up and downsize before they really want to.
Partly in order to help these people, a new type of interest-only deal came to the market. These products are known as “retirement interest-only” (RIO) mortgages and are a little more pricey than standard home loans.
So Is This The Saviour Of So Many People?
RIO mortgages are effectively standard home loan deals with one key difference: the mortgage does not have a set end date and carries on until “a specified life event” is triggered – ie, the borrower’s death or the date they move into a care home. Until then, they continue to pay the interest each month and the loan is ultimately repaid from the sale of their property.
This seems great, but we are finding in reality that at this moment in time the number of people that actually get accepted for these mortgages is actually very low.
Why Is This?
These plans are still based on affordability into retirement and are usually stress tested on 1st death for a couple (based on the spouse with the highest income levels passing away first) and this makes it a non-started for so many.
On top of this there is no real flexibility in repayments and is more of a one off lump sum.
Our View on RIO Mortgages
We will always seek to see if a RIO mortgage is right for you and hope that the rules relax around these plans so that many more people can actually benefit from them.
The good news is that if a RIO mortgage is what you want, but you do not qualify, then a Lifetime Mortgage could save the day.
With a Lifetime Mortgage you can still make your Interest Only payments, but you are not forced to and so if you want to stop in the future and let interest roll up, then you can.
You may also be able to have a reserve to draw from for future needs and will have a fixed rate of interest for life on any money that you take at the time of taking it.
Please feel free contact us to talk to us about the best options for you.