Best RIO mortgage rates

Can you get a mortgage if you're retired?

The short answer is yes. Lenders realise that many people choose to continue working past typical retirement age, and that others still have mortgage debt from previous arrangements. As such, they provide options to suit – albeit more limited. If you're approaching retirement and still have an interest-only mortgage you're not sure how you'll pay off, or you want to remortgage for any other reason, taking out a retirement interest-only (RIO) mortgage could be an option.

A possible alternative to equity release and a way to clear your current mortgage debt without needing to downsize, a RIO mortgage works in a similar way to traditional interest-only deals and can be very helpful in obtaining a mortgage in retirement. So, is now the time to consider one?

Can I extend my interest-only mortgage past retirement age?

Yes, and this is the key reason that RIO mortgages were introduced. After the boom of interest-only deals in the 80s and 90s, their popularity quickly plummeted when endowments, house prices and investments did the same in the midst of the financial crisis.

People found themselves with a ticking time bomb of a mortgage they had no way of repaying, many of whom were approaching retirement, so rather than see huge swathes of borrowers losing their homes, the industry responded – and so the option of extending an interest-only mortgage into retirement came into being.

What is later life lending?

Later life lending is a selection of different types of flexible mortgages available to those over the age of 55, such as Retirement Interest-Only (RIO) mortgages and lifetime mortgages. Sarah Wilby, Mortgage and Protection Adviser and Later Life specialist at our partner, Mortgage Advice Bureau, explains more in the video below:

What is a Retirement Interest-Only (RIO) mortgage?

A RIO mortgage is a way for older homeowners to borrow in retirement. Much like with a standard interest-only loan, borrowers only need to repay the interest rather than the capital – which can be a lot more achievable for those on a pension income. However, there’s usually no set term; rather, when the borrower dies or goes into care, the house will be sold and the mortgage repaid, with any additional value in the house forming part of your estate.

These mortgages were primarily designed for interest-only borrowers who found they were approaching retirement with no way to repay the capital. They allow homeowners to remortgage their existing loan under similar terms to their current interest-only arrangement, avoiding the cliff edge that’s the common feature of traditional interest-only loans. But this isn’t the only reason people choose such mortgages; some may choose to take a RIO mortgage outright, perhaps to release cash tied up in their home or to fund a move to a more suitable property.

Either way, a key benefit of this kind of mortgage is that there aren’t as many affordability checks as with a standard mortgage; all you have to do is prove you can afford to repay the interest. As such they can be a great choice for those who need to borrow in retirement, but particularly for those who don’t have any other means of repaying a previous interest-only deal.

How does a RIO mortgage work?

RIO mortgages are essentially a hybrid of interest-only and equity release, and work by combining the two. Initially, the interest-only arrangement results in lower repayments than if you had a full capital and interest deal, then the mortgage is eventually repaid when the house is sold.

Yet even here, there are options. Some providers allow borrowers to repay part of the capital as well as the interest, which although it results in higher repayments, will mean that more of an inheritance can be left to loved ones. Others offer set repayment dates, rather than having an unrestricted term. A lot of big-name lenders now offer these retirement mortgages, too, giving peace of mind to those who would prefer to borrow from a high street bank or building society, so there are plenty of options for those seeking to borrow in later life.

Who can get a RIO mortgage?

Much like with a standard mortgage, there are eligibility criteria that you’ll need to meet in order to get a RIO mortgage. Bear in mind that lenders will set their own rules, but typically you’ll need to:

• Be a minimum age. You’ll normally need to be 50 or 55+, though this will depend on the lender and some don’t have any minimum age limits at all!
• Be mortgaging your main home. It must be your main residence, not a second home.
• Have a minimum amount of equity. Typically, you’ll be expected to own at least 50% of your home, but this can vary by lender.
• Meet affordability checks. You’ll still need to meet affordability assessments, but these can often be more flexible than with standard mortgages.

Essentially, anyone who owns their own home and meets minimum age requirements could be eligible for a RIO mortgage, provided they’re able to prove they can afford the repayments. Luckily this should be easier to achieve than with a standard mortgage as repayments will typically be lower, which can make this form of borrowing more suitable for those on a low income.

How much could you borrow?

This will vary depending on the lender as well as your age, credit score and affordability profile, but generally speaking, you could be able to borrow as much as 75% of the value of your home. The benefit of RIO mortgages is that, because interest isn’t compounded, the amount you’ll have to repay on death or sale of the property will never exceed this percentage.

Is it worth getting a RIO mortgage?

This entirely depends on your personal circumstances, but there are a few things you should consider before applying for this kind of mortgage so you can decide if it’s the right option for you:

You can borrow into retirement

In some cases, getting a RIO mortgage may be more of a necessity than a choice – if you’ve got an interest-only deal that you can’t pay off and are approaching retirement, a RIO mortgage could be the best solution, allowing you to stay in your home while giving you an avenue for repayment.

You can access equity in your home

RIO mortgages also could be suitable for those who simply want to access the equity tied up in their home in an affordable way, with manageable repayments that can also be more flexible than other forms of borrowing (you may be able to pay off some of the capital at the same time, for example).

Inheritance considerations

It’s important to consider how a RIO mortgage can impact your estate and the amount you’ll leave behind to loved ones. On the plus side, the fact that interest is repaid rather than compounded means the amount to be paid out of your estate will typically be less than with an equity release deal (depending on the amount borrowed), but you’ll still leave a lower inheritance than with a typical repayment mortgage, as the full loan amount will still need to be repaid.

RIO mortgages vs. lifetime mortgages

RIO mortgages are often thought of as an alternative to lifetime mortgages (also known as equity release). So what’s actually the difference between the two? You can find out more in our guide, but here’s a quick overview:

It’s likely that the biggest consideration when deciding between the two will be your budget, and whether you have the capacity to make monthly repayments throughout retirement. If you do, RIO mortgages may be preferred as you’ll typically be able to leave a larger inheritance, but if you don’t have an income that can accommodate those payments, you may be better off with equity release. Always speak to a broker to discuss your options fully.

Other forms of later life lending

RIO mortgage and equity release are the two main types of mortgage lending available in later life, but if neither of those suit, you may be able to extend your standard mortgage into retirement. However, this will be subject to strict affordability criteria and not all lenders will offer it, so make sure to discuss your options ahead of time.

Ultimately, RIO mortgages could be a great option for those unsure how they're going to repay their interest-only mortgage debt, but as with any mortgage decision, it’s important to get impartial expert advice from a financial adviser before committing.

Who offers retirement interest-only mortgages?

There are several lenders that offer RIO mortgages, the vast majority being mutuals and challenger banks. Nationwide Building Society is perhaps the best-known high street name in the sector, though others include Nottingham Building Society, Leeds Building Society, LiveMore Capital, Hodge Bank and Hanley Economic. For a full overview of the lenders operating in the space, and to consider your options on a more personalised basis, speak to a mortgage broker.

Should I speak to a mortgage broker?

Mortgage brokers remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and the best retirement interest-only mortgage rates, some of which aren’t available to the public. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.

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