What is a RIO mortgage?
RIO mortgages have increased in availability following a focus by the Financial Conduct Authority (FCA) to improve access to mortgage borrowing for older people.
Essentially, a RIO mortgage enables borrowers to pay a monthly interest payment with no set end date – it continues until a ‘significant life event’, such as the last borrower moving into long-term care or dying. At this point the loan is repaid by way of the property being sold. It is important to note that a RIO mortgage is different from both a standard residential interest only mortgage and a Lifetime Equity Release mortgage.
Who qualifies for a RIO mortgage?
A RIO mortgage is typically available to borrowers aged 55 or over with a certain amount of equity, looking to either purchase a new property or remortgage their existing home. As with all types of mortgages eligibility criteria will vary between mortgage lenders, so it is best to fully research the options available.
How does a RIO mortgage differ from a standard residential mortgage?
Because RIO borrowers are maintaining a monthly interest payment, this means two things - firstly that the affordability of the loan is assessed on the interest payment and not the total loan amount. Secondly, by paying the interest off each month borrowers are not adding to the mortgage balance or attracting compound interest.
Crucially, by not having a set end date, this means borrowers do not need to have a repayment vehicle in place – they are utilising their property as repayment of the original loan amount. Of course, standard residential mortgages are also available on an interest only basis so it is well worth researching the available options or seeking professional advice.
Why do people have a mortgage in later life?
Later life borrowers, also known as older borrowers, may still have an outstanding loan to repay or they might be mortgage-free and want to release equity in their home. Some of the reasons for doing this include:
- Gifting funds to children and grandchildren to help them onto the property ladder.
- Funding home improvements or extending their property.
- Purchasing an additional property to retire into.
- Buying a static caravan or motor home to enjoy life at a more leisurely pace.
It is important that borrowers fully assess their options before taking out any type of mortgage loan and consider seeking professional, no-obligation advice.