In a new video on his MoveIQ Youtube channel, UK property expert Phil Spencer explains what Retirement Interest Only (RIO) mortgages are, how they work, and their pros and cons. Here’s our summary…
Is a Retirement Interest Only Mortgage Right for You?
Are you over 55 and thinking about using the value of your home to boost your retirement income? You’re not alone! Many older homeowners are looking at ways to access the wealth tied up in their properties. But with so many options out there, it can be tricky to know which one is best for you.
One choice you might not have heard of is a Retirement Interest Only (RIO) mortgage. This type of loan is specifically designed for older homeowners and can help you get some extra cash without having to sell your home.
How Does a Retirement Interest Only Mortgage Work?
Think of it like a standard interest-only mortgage, but with some key differences for older homeowners:
- You only pay the interest: You won’t have to pay off any of the actual loan amount (the capital) each month.
- The loan is repaid later: You only repay the capital when you die, sell your home, or move into long-term care.
The Pros and Cons
Here’s what you need to know about the advantages and disadvantages of a Retirement Interest Only mortgage:
Pros:
- Lower monthly payments: Since you’re only paying interest, your monthly payments will be significantly lower compared to a standard repayment mortgage.
- Stay in your home: You can avoid downsizing or selling your beloved home just to pay off your mortgage.
- Peace of mind: The loan doesn’t have a set end date, giving you more financial security in your retirement.
Cons:
- Less borrowing power: You might not be able to borrow as much as you’d like because the loan is based on your retirement income.
- Less inheritance: Your loved ones will receive less inheritance as the loan needs to be repaid from the sale of your home.
- Risk of repossession: If you can’t keep up with the interest payments, you could lose your home.
RIO vs. Equity Release – What’s the Difference?
Equity release is another option for accessing the value of your home. It comes in two main forms: lifetime mortgages and home reversions.
- Lifetime mortgages allow you to borrow against your home’s value, and you don’t have to make repayments while you’re alive. The loan is repaid when you die, sell your home, or move into long-term care.
- Home reversions involve selling part or all of your home to a company in exchange for a lump sum or regular payments. You can continue living in your home but are responsible for maintaining it.
The key difference between an RIO and a lifetime mortgage is that you pay interest monthly with an RIO, so your debt doesn’t grow over time. With a lifetime mortgage, the interest builds up until the loan is repaid.
Get Expert Advice
Before making any decisions, it’s vital to talk to an independent financial advisor. They can help you understand the risks and benefits of each option and determine if an RIO is the right choice for your individual circumstances.
Remember, your retirement is a significant chapter of your life. Take the time to explore all your options and make informed choices that will help you enjoy a comfortable and secure future.