A Retirement Interest Only or RIO mortgage is a great option for older people who want to make paying off their mortgages easier and less stressful. It could allow you to get more equity out of your house in a very effective way. These mortgages have become increasingly common throughout the UK, and it is important to at least consider this option before making a decision. RIO mortgages are now classified as standard mortgages, and they are available to many seniors.
How Does an RIO Mortgage Work?
When you get an RIO mortgage, you will have to make interest payments each month until you are no longer alive. After you have died, the lender will sell the house to get back the rest of the loan. This is a similar option to interest-only mortgages, which also require you to pay just interest every month. The primary difference is that an RIO mortgage is repaid once you are no longer alive, as opposed to selling the house yourself at some point. There is also the fact that you have to be of a certain age and income bracket to get approved for an RIO mortgage.
Who is Eligible for an RIO Mortgage?
RIO mortgages are exclusively for older people, usually over the age of 60. You need to be at an age where you are getting ready to retire soon. While there is no official minimum required age, most lenders will be less likely to approve younger applicants.
The government has really been pushing RIO mortgages to help people who want an interest-only mortgage but don’t have any alternative investment options to repay the loan later on. Those who don’t want to make monthly mortgage payments for the rest of their lives should consider equity release instead.
Those who work some of the time but are mostly retired with a reliable stream of income should also consider this option because of what it has to offer.
RIO Mortgages vs. Equity Release
Equity release mortgages are set up against your home’s overall value, which lets you get some of the equity that you have accumulated over the years. These mortgages are suitable for people who are older than 55 years of age, and they get repaid after the last person who occupied the home has died.
With an equity release mortgage, you don’t have to make monthly payments. This option can cost you more than an RIO, simply because the interest adds up over time. It can, however, be a good choice for those who don’t make a lot of money. If you get a lifetime mortgage, you won’t have to pay more than what your house is worth no matter what.
If you choose an RIO mortgage, each of your repayments will be considerably less. The great thing about this option is that there is no set date that the money must be paid back by.
Repaying an RIO Mortgage
You will pay back your RIO mortgage through monthly interest payments, and the lender gets the rest when they sell your home after you die or have entered into long-term care at a facility.
The FCA reclassified RIO mortgages as standard mortgages due to how simple and easy they are. This government agency is trying their best to make these mortgages available to as many older people as possible in the UK.
Advantages of Getting an RIO Mortgage
There are lots of advantages associated with getting an RIO mortgage that you need to take into consideration. One of the best things about this option is that it is a good choice for those who are retiring soon. It won’t require you to submit a plan for repayment to the lender, because they know they are going to get the money back at some point. This will also significantly decrease the size of your monthly payments, allowing you to live a more comfortable live.
Disadvantages of Getting an RIO Mortgage
While there aren’t many downsides to getting an RIO mortgage, you will have to submit certain paperwork to the lender to prove that you can afford to make your payments. This is something that most people who have a steady income won’t have issues with.
If you are unable to keep making your repayments on time, you risk losing your home. It is therefore crucial for you to do the math and see if this option does indeed make sense.
The amount of money that you will be allowed to borrow depends on how much you make. This can be a drawback for many older people who don’t make much on a regular basis. While there are some downsides to consider, an RIO mortgage is a great option for many older people in the UK.