More retirement interest-only mortgages (RIOs) can be found than ever before, giving older homeowners a different way to gain access to. But is this new kind of interest-only product right for you?
There were only five retirement interest-only mortgage products obtainable in July 2022. Time has since ballooned by more than 600%, according to data from Moneyfacts.
Like traditional interest-only mortgages, RIOs need you to repay only the interest each month, rather than the interest and area of the actual mortgage balance. Generally, the borrowed funds is repaid when you die or transfer to long-term care.
With the amount of retirement interest-only mortgage products growing, we take a look at who RIOs work best for, and whether you should consider one for yourself.
How fast may be the retirement interest-only mortgage market growing?
Originally sold as a kind of equity release, RIOs were reclassified through the FCA as standard mortgages in March 2022. By July of that year, only two mortgage providers were offering them.
Just six months later, in February 2022, financial data provider Moneyfacts said there were 38 RIO products available from 12 lenders.
Since then, the marketplace continues to grow, with four or five more lenders launching RIOs and lots of of these expanding their retirement mortgage offerings.
Initially, growth was driven by smaller building societies, but in April Which? Recommended Provider Nationwide revamped its later-life lending range, adding a retirement interest-only mortgage product of its own.
And it's not only RIOs specifically which are growing. Many lenders are making their criteria friendlier to older borrowers, launching retirement-focused repayment mortgages and lifetime mortgages, and creating much more choices for homeowners in retirement.
Which? analysis of Moneyfacts data out of this week shows you will find 141 mortgage products especially for borrowers aged 50 and also over.
For a detailed introduction to which lenders offer retirement mortgages and how each provider’s products work, visit our RIO mortgage guide.
Are retirement interest-only mortgages for me personally?
If you’re in or approaching retirement, there are a variety of reasons a RIO may well be a good option for you personally.
Lower monthly payments
Homeowners who are yet to pay off their current mortgages can benefit from remortgaging to a RIO.
Since your retirement income is likely to be less than your working income, a RIO’s lower monthly payments could be more accommodating to your needs.
Paying off an interest-only mortgage
In the next five years, thousands and thousands of interest-only mortgages can come to term, leaving many householders with bills for the full purchase price of the homes.
Thousands will be not able to pay those bills, and many is going to be too old to remortgage to some traditional repayment mortgage, leading to what many have called an interest-only mortgage ‘crisis’.
Since they’re available to older customers, and permit you to definitely repay your loan with the sale of your house, RIOs could provide a lifeline to people within this difficult situation.
Cash injection
Many homeowners remove RIOs to pay for renovation projects, such as general home improvement or adapting their houses for reduced mobility.
Others make use of the cash to assist younger members of the family jump on the property ladder or just to finance their everyday living costs in retirement.
Flexibility
Most RIOs allow fee-free overpayments following a certain point, meaning if you possess the money, you are able to repay your mortgage early and steer clear of selling your home after the word.
Check together with your lender first, though, as the particular deal may have early repayment charges (ERCs), which could make settling early expensive.
What are the drawbacks?
RIOs may appear great so far, but there are some things you should know before you apply for one.
Our retirement interest-only mortgages guide has more information on how they work and who's permitted to apply.
The best rates for retirement interest-only mortgages
The table below has a snapshot from the RIO deals offering the best rates right now, although with mortgage providers launching retirement products on a regular basis, there may well be more deals available when you arrived at apply.
All of the deals listed are discount mortgages, but other mortgage types are available.
Things to help keep in mind
You shouldn’t select a mortgage according to rates alone. Product fees, early repayment charges, customer support and your future plans should all form part of your decision too.
Talking for an impartial expert
The quantity of RIOs is growing, and thus is the range of product types that you can potentially choose from.
It could be a bit of a minefield, and it’s worth speaking with a whole-of-market broker who are able to counsel you on the best option for use on your situation.
