Retirement Interest Only Mortgages (RIO): Explained


If you’re over the age of 50 and you’re having trouble finding a mortgage, a retirement interest-only mortgage may be the best option for you. 

This type of mortgage can offer a lifeline to older borrowers and can be a cheaper alternative to equity release.

What is a retirement interest-only mortgage?

A retirement interest-only (RIO) mortgage is similar to a standard mortgage, but there are two key differences:

  1. The loan is usually paid off when you die, move into long term care or sell the house.
  2. You only have to prove that you can afford the monthly interest repayments.

Who can get a retirement interest-only mortgage?

Although there is no minimum age requirement, this type of mortgage is generally aimed at older borrowers, such as those who are over 55, over 60s and pensioners

How does a retirement interest-only mortgage work?

With a RIO mortgage, you pay the interest on the loan every month. However, some lenders will allow you to pay off capital too. 

For example, if you had a property worth £400,000 and you borrow 25%, which is £100,000, at a 5% interest rate, you would make monthly repayments of £416.

If you go into long term care in 15 years time, it would be time to repay the debt, which would still be £100,000. Assuming your property is now worth £500,000, you would have £400,000 after the sale of your home. You will have paid £74,880 in monthly interest repayments over the 15 years.

How do you repay a retirement interest-only mortgage?

With RIO mortgages, you only pay the interest on your loan to your mortgage provider. This means that the amount you owe doesn’t increase over time. 

You don’t have to repay the capital until you die or go into long term care, in which your home will be sold and the lender is repaid with the proceeds. 

What is the difference between a retirement interest-only mortgage and a lifetime mortgage?

On a surface level, a RIO mortgage is quite similar to a lifetime mortgage. However, there are a few key differences:

  • A lifetime mortgage can only be taken out when you own 100% of your home’s equity. A RIO mortgage however, can be taken out to pay off a previous mortgage, as well as being used to release equity.
  • A RIO mortgage always involves paying the interest off as you go. You do have this option with a lifetime mortgage, but you can choose against it. 
  • The application process with a RIO mortgage is slightly more stringent than a lifetime mortgage as you need to prove that you can afford the interest repayments. 
  • Lifetime mortgages are only available through brokers with equity release qualifications, but RIO mortgages are more readily available. 

What is the difference between a retirement interest-only mortgage and equity release?

Both a retirement interest-only mortgage and an equity release mortgage are a type of retirement mortgage, but the repayment terms are different.

The main difference is that with equity release, interest can be rolled over and repaid at the end of the loan so there are no monthly repayments. If you do allow the interest to roll over, the debt will grow as time passes. This can mean that when it’s time to repay, there won’t be a lot of money left in your home to pass it on as inheritance. 

Pros and cons of a retirement interest-only mortgage

As with every mortgage, there are different pros and cons that you should weigh up.

Pros of retirement interest-only mortgages 

  • Eligibility –  Retirement interest-only mortgages generally only require you to prove that you can meet the monthly interest repayments. 
  • Affordability – Smaller payments means that there is less strain on your income. Since the loan term isn’t fixed, you don’t need to worry about paying it back after a certain period. 
  • Value – Retirement interest-only mortgages don’t accumulate interest like equity mortgages do, meaning they can work out cheaper in the long run. 
  • Planning inheritance – Since you’ll be paying off the interest on the loan as you go, you’re more likely to have something to leave behind to your loved ones after you die. 

Cons of retirement interest-only mortgages 

  • Forfeiting some of your home’s value – As the loan will be repaid from the sale of your home, the amount of money you can leave behind may be reduced.
  • Repossession – The loan is secured against your property, so failing to make the agreed monthly repayments could result in you losing your home. 

How much can you borrow with a retirement interest-only mortgage?

How much you are allowed to borrow with a retirement interest-only mortgage will depend on the lender’s affordability assessment, and the total value of your home. 

Personal and living expenses will also be taken into account, along with other factors that could affect your income and your ability to make repayments. 

Your lender will also assess the loan-to-value ratio of your retirement interest-only mortgage. Higher ratios result in a greater risk to the lender, so you will have to pay a higher interest rate. 

How do you get the best retirement interest-only mortgage?

If you’re planning on going down the route of getting a retirement interest-only mortgage, then it is vital that you seek expert advice from an independent mortgage broker. 

At Barlow Irvin, we have an expert team of independent mortgage advisors who will be able to discuss all the options available to you and help you choose the right path. 

FAQs about retirement interest-only mortgages

What happens to a retirement interest-only mortgage if you die?

If all the occupants of the house have died, the property will be sold and the funds will be used to settle the outstanding retirement interest-only loan.

This will generally apply to all mortgage holders too who have moved to long term care. 

What do you do if you can’t afford the interest on a retirement interest-only mortgage?

Failing to make the interest repayments on your retirement interest-only mortgage could result in your house being sold, or you may have to move onto an interest roll-up lifetime mortgage. 

Can you switch to a retirement interest-only mortgage?

Yes, it is possible to switch to a retirement interest-only mortgage, but you may have to pass a new affordability test with the bank or building society that is offering the mortgage. 

Be sure to check if there are any penalties, and how much they will be for switching from your current lender.

How can older mortgage borrowers prove their income for a retirement interest-only mortgage?

Specific checks will vary between lenders, with some accepting different forms of income to others. 

If you plan on working beyond the state pension age, some lenders will carry on considering earnings beyond 65. You may also be required to provide a company pensions forecast or annuity statement as well as your state pension statement.

About the author 

Gary Oxborough

Gary is the Founder and Director of Barlow Irvin Financial Services Ltd. He has been in the Finance industry for over 20 years and has specialised in Mortgages since 2003. As well as running the firm, he is still actively involved in advising clients.

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