Retirement Interest Only Mortgage

The concept of retirement has changed rapidly in recent years. There’s no set retirement date anymore and the choices that your clients make in the years ahead are going to be personal and unique to them. While for most people a pension remains their main source of income in retirement, more people are now looking to their home as a way to borrow additional money. 

One clear theme is that people appear to be more comfortable borrowing later on in life. 

The reasons for this vary - from the fact that many of us are living for longer, there are gaps between client expectation and many are finding that their home makes them asset rich but cash poor. However, a growing and common theme is that many people who took out an interest-only mortgage a number of years ago are now reaching the point of repayment and are considering their options.

A Retirement Interest Only Mortgage could potentially offer a solution for these clients.

What is it and how does it work?

A RIO is an interest-only mortgage designed for those aged 55 and over. It can be used to replace an existing interest-only mortgage or take out a new interest-only mortgage for the duration of their life. A RIO is a loan secured against your client's home.

The amount that can be borrowed will be based upon an affordability assessment, looking at your client’s income and outgoings to make sure they can keep up payments. Joint applications will be based upon the current or future income of the lowest earning applicant to ensure they'll still be able to afford the mortgage if something was to happen to the other applicant.

Every month they'll pay the interest on the balance of the mortgage. This amount is fixed for the duration of their mortgage, providing some peace of mind that they know what they'll owe on a monthly basis.

A RIO is usually repaid from the sale of their home when they, or the remaining applicant (if the mortgage is in joint names), dies or moves out of their home into long-term care. The RIO can be also can be repaid early in all or in part, although this may result in an Early Repayment Charge, see our Retirement Interest Only Mortgage Terms and Conditions for further details.

Who's it for?

  • Those aged 55 or over.
  • Living in or buying their own home in England, Wales or mainland Scotland.
  • Property must be worth a minimum of £100,000 or £150,000 for ex council, ex housing association or ex Ministry of Defence properties.
  • Those that can demonstrate their ability to afford the monthly interest payments now and when they're no longer working.
  • Applicant(s) that meet our specific lending criteria. Our eligibility assessment will be based upon the lowest income of any joint application in order to ensure that the remaining borrower will still be able to afford the mortgage.
  • Those who want to borrow a minimum of £10,000.

How can it help?

A RIO exists for the over 55’s who're looking for an interest-only mortgage during retirement years. This could be a new mortgage or to replace their current interest-only mortgage with a mortgage that allows them to continue making interest-only payments for the remaining time that they live in their home. A RIO is a loan secured against your client's home. When a client takes a RIO, at that point they may be able to take a larger mortgage than they currently have, depending on affordability checks. They may choose to use it for items such as:

  • Home and garden improvement
  • Helping family - children and grandchildren.
  • Having a little extra for enjoying retirement. 

It's important for your clients to understanding that by taking out a RIO, it may:

  • Impact any inheritance.
  • Need to make an Early Repayment Charge if they repay the loan early.
  • As a last result, may have their home repossessed if they fail to make interest payments

How much can be borrowed?

You can find out how much your client may be able to borrow by viewing our product summary. The amount we’re willing to lend will be subject to an affordability assessment and our Retirement Interest Only Mortgage Lending Policy.

Retirement Interest Only Mortgage Product Summary

Product comparison

How does a RIO compare to a Residential and Lifetime mortgage? 

table
Residential mortgage RIO Lifetime mortgage
Loan type

A loan secured against your client’s home. May be either repayment (capital and interest) or interest-only.

A loan secured against your client’s home. An interest-only mortgage. RIO is a type of residential mortgage for over 55s.

A loan secured against your client's home throughout their lifetime. A lifetime mortgage is for over 55s.
Interest

Interest is charged on the mortgage monthly and your client makes monthly payments.

Interest is charged on the mortgage monthly and your client makes monthly payments.

Interest is charged on the mortgage monthly. Any unpaid interest charged on the mortgage is added to the loan. This is sometimes called compound or rolled up interest.
Interest rates There are a variety of interest rates your client can choose from. The most common are variable or fixed rate.

The interest rate is fixed for a set period or for the duration of the mortgage.

The interest rate is fixed for the duration of the mortgage.
Monthly payments Your clients are required to make a monthly payment. Your clients are required to make a monthly payment. No monthly payments are required during the lifetime mortgage. It's possible with some products to pay the interest in part or whole.
Loan term The term is fixed for a set period of time. For example, 25 years.

There is no loan term. The mortgage lasts until the last borrower dies or moves out of their home into long term care.

There is no loan term. The mortgage lasts until the last borrower dies or moves out of their home into long term care.
Affordability Your client's income and expenditure is assessed to ensure they can afford the mortgage.

Your client's income and expenditure is assessed to ensure they can afford the mortgage.

There are no affordability assessments.
Repayment

Repaid through the monthly payments over the loan term. 

With an interest-only mortgage your client only makes monthly interest payments, so your client will need to make a lump sum payment at the end of the mortgage.

Repaid from the sale of your client's home when the last remaining borrower dies or moves out their home into long term care.

The loan and interest is repaid from the sale of your client's home when the last remaining borrower dies or moves out their home into long term care.

To find out how to make an application for our Retirement Interest Only please use the link below.

To find out how much your client can borrow, see our product summary below.

Retirement Interest Only Mortgage Product Summary

Key documents

Application process

To find out how to apply for our RIO, use the link below.

Contact us

Talk our team on 03330 048 444 or email us*.

Monday to Friday, 9.00am to 5.30pm. We may record and monitor calls. Call charges may vary.

Questions and answers

We've answered some questions about our RIO and how it works.

*If you're contacting us by email please remember not to send any personal, financial or banking information belonging to you or your client because email is not secure method of communications.