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 PDFsize: 289KB for further details.
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