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Why Get A Retirement Interest Only Mortgage?

MORTGAGES | 09.09.2021

If you’re an older borrower and struggling to get a standard residential mortgage, Retirement Interest Only Mortgages (RIOs) could be exactly what you’re looking for. Similar to traditional interest-only deals, this type of mortgage means you’ll only need to repay the interest (and not the loan itself) each month, which can be more feasible on a pension income. Let’s explore whether a Retirement Interest-Only mortgage is right for you.

What is a Retirement Interest Only mortgage?

A Retirement Interest Only mortgage allows older homeowners to borrow in retirement. It’s only available on your main residence and works in a similar way to standard interest-only mortgages, with two main differences: 
  • There’s usually no set repayment date, meaning the loan is paid off when you die, move into care, or sell the property. 
  • You only need to prove to a lender that you can afford the monthly interest repayments.

Are they a good idea?

Getting a Retirement Interest-Only Mortgage has many advantages, including: 
  • You’re more likely to have something to pass on as inheritance.
  • Avoid interest roll-up, which is where interest continually builds like with lifetime mortgages. 
  • The loan term isn’t fixed. 
  • You won’t have to downsize in order to release money from your home.  
  • They’re typically cheaper than lifetime mortgages.

Is a Retirement Interest-Only Mortgage the same as equity release?

Though they are both retirement mortgages, the repayment terms differ. So when you choose a Retirement Interest-Only mortgage, you repay the interest each month, with the option to also pay off capital on occasion. On the other hand, equity release can be built up and repaid at the end of the loan, meaning there are no monthly payments.  As there are no repayments with equity release, the debt continues to grow. This means that when it’s time to pay, there won’t be much money left in your home to pass on to family and loved ones. 

Who does these mortgages?

The Financial Conduct Authority (FCA) moved RIOs out of the equity release sector and into the standard mortgage market in 2018, allowing mainstream lenders and high street banks to offer this type of mortgage. To help you access the best rate, our expert mortgage brokers will look into each lender’s deal to save you stress, time, and money. 

Should I choose this type of interest-only mortgage?

There are a number of reasons why you might want to take out a mortgage when you’re older. These include: 
  • To purchase a retirement property which better suits your needs.
  • Release cash from your home to top up your pension income. 
  • Help a loved one buy their first home. 
If you’re coming towards the end of your current interest-only mortgage and wish to stay in your home, please don’t hesitate to talk to one of our mortgage experts about the next steps you could take. They’ll be sure to search the market and choose the best product for your circumstances before helping you through each stage of the application process. To discuss your options, get in touch here today.
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