Homeowners have access to double the number of retirement interest only mortgages as more providers offer products.
There are 74 retirement interest only mortgages (RIO) on the market to help homeowners almost doubling over the last year according to moneyfacts.
More providers have joined the RIO market from twelve in February 2019 to eighteen this year offering more choice if you have an interest only mortgage which the lenders requires you to repay.
For many older people it becomes increasingly difficult to meet the repayments of their residential mortgages and the equity release buyer can secure a lifetime mortgage with no evidence of earnings and no payments required.
More flexibility for RIO mortgages
In March 2018 the regulator the FCA made it easier for older homeowners finding it difficult to switch to new mortgage deals to continue with a RIO mortgage, paying interest only for their lifetime.
The number of products offered has increased by 36 over the year compared to the launch in 2018 when there were only two providers and five products.
The cost of RIO mortgages has reduced slightly from 3.50% a year ago to 3.47% in February 2020.
Retirement interest only mortgages work on the same basis as a residential mortgage paying interest each month except there is no term for borrowing, ending when you die or go into long term care and allowing you to leave equity for beneficiaries.
Having no end date is similar to buy-to-let investors where some lenders have no end term as the property is based on sustaining rental income exceeding 145% of a notional mortgage interest rate and not the age of the landlord.
In contrast first time buyers and home movers must repay the mortgage by the time they reach a certain age, such as 70 or 75 using a capital and interest repayment to the lender.
Restrictions of these mortgages
A retirement interest only mortgage must be the first change on the property and the older remortgage buyer would require any existing mortgage to be repaid in full.
Unlike equity release, with a RIO mortgage the lender would apply income and affordability checks and you would need to show that your income over expenditure is sufficient to pay the providers interest.
If the RIO mortgage is not the answer, see what you can release to repay an existing mortgage and the leading providers at this link:
Equity release calculator with instant results and figures for your property.
For a joint application these checks would apply to the youngest surviving applicant and this often means the retirement income used is lower than the joint income.
The maximum you can borrow may be lower than expected compared to equity release if you have a small retirement income and may not be suitable when relocating and buying a new property.
For smaller provider loans to values, equity release plans have fixed rates below 3% whereas the RIO mortgage may charge a higher rate, requiring interest repayments each month which could rise after your preferential rate ends.
What are your next steps?
Talk to our London City Mortgage advisers if you are an older homeowner releasing equity from your property, we can recommend the lifetime mortgage to access wealth to consolidate debt or home and garden improvements.
Our equity release experts can advise you on the best approach to access cash from your existing property or even a new home if you are relocating and manage the application through LCM.
We can help you when planning to access cash from your home using a retirement interest only mortgage or equity release at this link:
Free equity release quote with the latest products to access cash from your home.
