RIO – Retirement Interest Only
This is an article on RIO (Retirement Interest Only) Mortgages Rate By: Tim Wills – Mortgage and Protection Adviser at Open Vision Finance.
Is it a cool place in Brazil? Is it a hit 1980’s song by Duran Duran? No! It’s a new type of mortgage…..
The market for mortgage lending into ‘later life’ on residential property is growing at a rapid pace, leading both our regulator (the FCA) and Mortgage providers to come up with new and innovative products.
Retirement Interest Only (RIO) mortgages have been designed to be different to standard Interest Only mortgages and Lifetime Equity Release mortgages, so that borrowers over the age of 55 can use the sale of their home as a repayment strategy to clear their outstanding mortgage debt when they die or move into long term care. This is very similar to the lifetime Equity Release mortgages you may be aware of, but there is no ‘interest roll up’ with RIO, giving you the certainty of the amount to be repaid when the mortgage comes to an end. So, as long as you have sufficient retirement income, RIO may be a suitable answer to your unique mortgage situation.
This type of mortgage could prove to be helpful for lifestyle financial planning that involves taking out a new mortgage to assist with planned lump sum expenditure, such as to help children to get on the property ladder, purchasing a second or holiday home for example. Another very important roll for this product is to help those people who have come to the end of their current Interest Only mortgage and do not have a large enough lump sum available to repay the outstanding capital balance. So, as long as there is sufficient income to meet the monthly RIO payments, you will not have to sell the family home and downsize.
RIO ‘s are not available to everyone though, as affordability is an issue. Customers without a large enough guaranteed lifetime income will be turned down. In addition, if a couple applies, affordability will be considered for each individual. Therefore, when looking at this type of mortgage, lenders will want to access both your current income if still working and your projected retirement income to ensure that the Interest repayments will remain affordable. Acceptable sources of income can be your earned income, pension income, rental income from other properties you own, income generated by savings and investments and dividends businesses you may have shareholdings in.
Depending upon your assessed affordability, you will be able to borrow up to 60% of your properties value with a choice of discounted, variable and fixed rate interest deals available. It’s also worth noting that the standard repayment mortgages are becoming more flexible as well, with loans available up to age 80 – subject to affordability!
This all adds up to improved access to borrowing for older customers, who have previously been excluded from borrowing in the past purely because of their age, despite having an income which would ordinarily enable them to borrow. The launch of the RIO tackles that issue, by enabling sale of property to be a viable repayment method in all cases, although rates are slightly higher than the standard mortgage terms.
These new and innovative products are great news for consumers as there is an increasing focus on using people’s housing equity to improve their standard of living in retirement, as well as providing solutions to the problems faced by the 1.67 million full interest only and part capital repayment mortgage accounts in the UK (according to the FCA) with interest-only mortgages with no suitable repayment strategy.
Lastly, but very importantly, it is important to bear in mind that customers taking out RIO ‘s may need to pay interest for the rest of their lives, which ought to mean registering a Lasting Power of Attorney (LPA), which protects them and their family if they can no longer manage their finances.
If this article has raised any further question for you regarding your current, or future mortgage situation, please get in contact as we’d be really interested to understand your personal situation further and welcome the opportunity to provide you with peace of mind for the future…
If you have found this article interesting or would like to arrange an appointment with one of our experienced mortgage consultants, please get in touch with us on 01823 444022 or by email to email@example.com.