This case study looks at how a RIO could improve their lifestyle in retirement.
This case study does not represent real people and is for illustrative purposes only.
Jenny has been retired for the last five years. As part of her divorce settlement ten years ago, she received the marital home, which was already mortgage-free.
She lives in Southwold, Suffolk, in a semi-detached four-bedroom house.
Her private pension, state pension and part-time job give her a reasonable lifestyle but she has very little money available for treats like holidays and nights out.
She has two children and three grandchildren.
She knows the value of her home has risen significantly since she and her ex-husband bought it 40 years ago, and has been wondering if there might be a way of using that to her advantage. But Jenny has never taken any sort of financial advice and feels rather confused and intimidated when it comes to financial matters, so hasn’t yet taken any action.
She has confided in her children who have encouraged her to look into the options available and have offered to help her with any decisions.
House value: £820,000
Part-time job: £6,000 a year
Private pension: £15,000 after tax annually
State Pension: £7,000 annually
Living expenses: £800 a month
Assuming that Jenny passes the affordability checks, a RIO might be a practical solution for her. There is a large amount of equity in the house and given her desire to stay put and provide an inheritance for her children, a RIO mortgage could offer her the lifestyle she desires.
Your client should think carefully before securing other debts against their home. Their home may be repossessed if they don't keep up repayments on their mortgage.
Their ability to make the payments may be affected if:
Taking out a mortgage in later life could limit their future choices too. For example:
This website is designed to give professional financial advisers information and tools that they can use to help control and develop their business and should not be relied upon by private investors or any other persons.