Could RIOs be a solution for borrowing into retirement?
The number of mortgage companies offering “Retirement Interest Only mortgages” (RIOs) seems to be increasing month by month. Figures from the financial researchers “Moneyfacts” show that there were only five providers in July last year, but now we are up to thirty-eight. This trend is expected to continue over the next few years.
Why are mortgage lenders offering RIOs?
Mortgage lenders have on their books a large number of customers who have an interest only mortgage but have no repayment vehicle in place. Their customers may have initially been paying into an endowment policy but cancelled the plan without making other provisions. Additionally, this group are now approaching retirement and finding it harder to renew their interest-only mortgage as the mortgage term is coming to the end.
Also, some customers are wishing to unlock the value built up in their homes.
How do RIOs work?
A retirement interest-only mortgage has two key differences to a traditional mortgage:
- Firstly, the loan is usually only paid off when you sell your house, move into long term care or pass away.
- Secondly, you only have to be able to show that you can afford the monthly interest repayments.
Is there a minimum age requirement?
Unlike equity release mortgages there is no minimum age requirement for RIOs. However, they are generally aimed at older borrowers, such as those coming up to retirement age. RIOs should not be seen as a backdoor way of offering interest-only mortgages to the masses.
How do RIOs differ from a Lifetime Mortgage?
With an Equity Release Lifetime Mortgage, you will have a larger amount to repay at the end because normally there are no monthly repayments as the interest is rolled-up (compounded) and added to the total loan.
In contrast, with a RIOs you cover the monthly interest payments and you may wish to make lump sum repayments during the term of the mortgage. This has the advantage that you are not paying interest on your interest. On the downside, you will make monthly repayments to cover the interest and this might be when your income has reduced in retirement.
How Anstee & Co can help you with a RIOs
We are Independent Financial Advisers (IFA’s). This means that we look at all of the financial solutions open to you not just RIOs. We will look at all of the solutions from the “whole of market”.
Meetings can be arranged at a time and location that is convenient for you. This can including home visits. Our offices are located at:
- Kettering, Northamptonshire
- Stamford, Lincolnshire
- Towcester, Northamptonshire
- Birmingham, Snow Hill Queensway
- London, Pall Mall
Our Financial Advisers also live and make use of meeting rooms in:
- Bedford, Bedfordshire
- Droitwich, Worcestershire
- Northampton and Wellingborough, Northamptonshire.
The first fact-finding meeting is free and with obligation so why not contact us today to see how we can help you design a secure financial future.