Your Complete Guide to Retirement Interest-Only Mortgages

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.

Reclassification

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.

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Reasons You May be Paying more than Necessary on Your Credit Cards

There are quite a few different reasons why many people end up spending more than necessary with their credit cards. A lot of these things are entirely avoidable, so it is important for you to know about them. If you want to get rid of your debt and remain financially free, you will need to keep these things in mind going forward. A credit card can be very useful, but only if you use it responsibly.

1. Your Payments are too Low

If you are just making the minimum required payment on your credit card, you are spending more on interest than you have to. We recommend that you pay as much as possible on your credit cards so you don’t end up paying a ton of interest. The average person has an outstanding balance of over £2,000 on their credit cards, and it’s mainly because their repayments are so small. You will never get anywhere with paying off your balances unless you start paying more on a consistent basis.

2. You Forget to Make Your Payments

It can be easy to forget to pay off your credit card balance, especially if you have a lot going on in your life. Forgetting to pay is an honest mistake, but you will still be charged an additional fee by your provider. It is a good idea to set up automatic repayment with your credit cards so that you never forget. This can make a world of difference when it comes to avoiding unnecessary fees that can be fairly steep.

3. Cash Advances

Taking out cash advances with your credit cards can also cost you a ton of extra money. The last thing you want to do is take money out of an ATM with your credit card if you can help it. Fees for these cash advances can be over 3%, which must be paid on top of the interest. You should really think about whether or not you need the cash advance before doing it. There is almost always a better borrowing alternative to explore.

4. Losing Track of Your Interest Rate

You always need to know what the interest rate with your credit card is at all times. One of the big reasons that a lot of people end up deep in debt is because they lose track of their rate over time. Interest rates are subject to change, so you need to know exactly how much you are going to pay each month. By keeping up with this you will be able to avoid spiralling into a deep pit of debt that is hard to get out of.

5. Spending Irresponsibly

You need to make a point of asking yourself whether or not you really need whatever you want to use your credit card for. The last thing you want to do is be irresponsible with your credit card, because it can get you into a lot of trouble financially. You should ideally only use your card for absolute necessities when there are no other borrowing options available.

6. Taking Advance of Certain Promotional Deals

While an interest-free credit card promotion may seem like a great thing to take advantage of, you should think twice before acting. It is very important that you take the time to look into the specifics of each deal so that you know what you are getting yourself into. Using a credit card with a 0% introductory interest rate can be good for paying off older debts, but only if you change your spending habits. It won’t do you any good at all if you keep spending money recklessly.

7. Not Checking the Terms and Conditions

Whenever you are applying for a credit card, you absolutely need to read the contract before signing it. This might take a while, but it is well worth it. You never know what hidden fees you might be required to pay with a credit card. When you take the time to go through this information, you can increase your chances of not getting yourself into a bad situation later on.

Final Thoughts

Credit cards can be very expensive to use, especially for those with bad credit. The more time you take to research your credit card options, the better off you will be in the long term. Or as an alternative, consider payday loans via the likes of Emu.co.uk or similar and also make sure that you are responsible with your card so that you can stay out of debt as much as possible. Once you get deep into credit card debt, it can be a real challenge to dig your way out. By following the tips in this article, you will be able to use your credit cards without fear of falling behind. These are things that anyone with a credit card should keep in mind at all times.

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