Retirement Interest Only (RIO) Mortgages

Equity Release includes Lifetime Mortgages and Home Reversion Schemes. We can only advise and arrange Lifetime Mortgages and will refer to an Approved Specialist for Home Reversion Schemes. These pages will focus on Lifetime Mortgages. These are only applicable to those over 55 and could affect eligibility to state means tested benefits and the inheritance you may leave.

What are Retirement Interest-Only (RIO) Mortgages?

A Retirement Interest-Only mortgage is an option for borrowing money secured against your home later in life, but it is not an equity release plan.

Back in 2017, the Financial Conduct Authority relaxed the rules so RIOs no longer had to follow the same regulations as lifetime mortgages. That opened the door for lenders to offer something that feels like a traditional interest-only mortgage - but with a twist: it’s designed to last for life, not just a few years.

With a RIO, you pay the monthly interest for as long as you live in your home, and the loan is repaid only when a major life event occurs - usually when the last borrower passes away or moves into long-term care.

Sounds simple? It can be. But there are some important differences between RIOs and Equity Release Lifetime Mortgages that you should understand before deciding which is right for you.

RIO and Lifetime Mortgages -What’s the Difference?

At first glance, RIOs and Lifetime Mortgages look like cousins - both are typically available from age 55+, and both are designed for people who want to stay in their home for life.

But under the surface, they behave quite differently:

(RIO) Mortgage

Type: Standard residential mortgage
Term: For life - no end date
Payments: Must pay interest monthly
Affordability check: Required (based on sustainable income) and assessed individually
Regulation: FCA mortgage rules
Risk of repossession: Yes, if payments missed
Interest rate: Often fixed short term, then variable
Eligibility: Based on income

Lifetime Mortgage

Type: Equity release plan
Term: For life - no end date
Payments: Choose to pay full interest, part, or none
Affordability check: Not required
Regulation: FCA + Equity Release Council guarantees
Risk of repossession: No, while you live in your home and subject to meeting the terms of the mortgage
Interest rate: Usually fixed for life
Eligibility: Based on age and property value

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Understanding Affordability and Income Checks

Here’s the catch: with a RIO you are committing to paying the interest every month for life. So lenders want to be absolutely sure you can afford it – not just now but in the future too.

For joint borrowers, they’ll check each person individually to see if the mortgage would still be affordable if the partner dies. This includes considering any widow’s or widower’s pension that might be paid after death.

Lenders typically won’t count employment income, because they expect borrowers to retire at some point. Even applying for a RIO with your existing lender if they do them won’t bypass these checks.

This strict affordability testing is one of the main reasons many RIO applications get declined. It’s not personal, just maths!

Find out More

RIO mortgages can work well for homeowners who:

Have an existing interest-only mortgage ending soon and no repayment plan in place.
Want to stay in their current home rather than downsize.
Have enough retirement income to comfortably afford the monthly interest payments.

They can also be suitable for people who are currently mortgage-free but wish to release funds for things like:

Helping children or grandchildren with a house deposit.
Making home improvements or adaptations.
Buying a holiday home or investment property.

It’s also possible to use a RIO mortgage to buy a new home, not just on a property you already own. This can bridge the gap between your sale proceeds and the price of your new home -perhaps one a little closer to family (or the seaside?!).

Things to Watch Out For

A few key points to bear in mind:

Interest rates aren’t fixed for life. You may get a fixed rate for a few years, but after that it’s variable - and we all know how unpredictable interest rates can be!
No Equity Release Council guarantees. These protections only apply to Lifetime Mortgages. With a RIO, if you miss payments, you could fall into arrears and face the risk of repossession - just like with a standard mortgage.
Possible impact on benefits and tax. Taking out a RIO mortgage could affect your eligibility for certain state benefits or change your tax position, so it’s worth checking before you apply.
Drawdown options are not available. It is a single lump sum product.

In short: RIOs can be helpful, but they come with responsibilities that Lifetime Mortgages don’t.

Choosing the Right Adviser

Here’s something most people don’t realise: not all mortgage advisers can advise on both RIO and Lifetime Mortgages - and not all are required to tell you about the other option! That means you could be shown only half the picture, which isn’t ideal when you’re making such a big decision.

Andy Wilson is qualified and experienced in both - which means he can give you honest, impartial advice on which route (if either) truly suits your situation best.

No jargon. No pressure. Just clear explanations and a sensible chat about what’s best for you.

Contact Us

Contact Andy Wilson Financial Services directly or fill out your details and we will contact you as soon as we're available.

Call Us:

01522 590015

Mobile:

07966 513397

andy@andywilsonfs.co.uk

Book A Meeting with Andy

11 Boscombe Close, Lincoln, LN6 3TG

Equity release includes lifetime mortgages and home reversion schemes. We can advise and arrange lifetime mortgages and will refer to an approved specialist for home reversion schemes.

There may be a fee for lifetime mortgage advice. The precise amount will depend upon your circumstances but we estimate it will be £1,295.

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