Equity Release
Retirement interest-only mortgage products double as rates fall
‘RIO’ mortgages can be used as an alternative to equity release for those homeowners who can afford to make a monthly repayment
The number of available Retirement Interest-Only products – known as RIOs – is now 74 – a year-on-year increase of 36, said Moneyfacts.
Not only have product numbers virtually doubled but, over the last 12 months, there have been a further six providers of RIOs mortgages starting to lend in this growing sector.
Getting cheaper
The financial information provider also said the average RIO interest rate has fallen from 3.50% to 3.47%.
Plus, a recent piece of research by Defaqto found that RIOs are cheaper than standard equity release mortgages.
What’s a RIO?
RIOs work like a standard mortgage product in that borrowers make monthly interest payments. However, there is no set end date or term for the mortgage. Instead, payments continue until either the borrower dies or goes into long-term care, at which point the property is sold in order to repay the debt.
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They are similar to equity release (or lifetime mortgages) in that they have no set term, but with RIOs the crucial difference to equity release is that the borrower makes a monthly interest-only payment on the mortgage, and equity release borrowers don’t.
This means the amount originally borrowed doesn’t increase with a RIO as it does with an equity release mortgage. But of course, a RIO is only suitable for those who have the means to cover their monthly interest payment, both now and into their retirement.
Eleanor Williams, finance expert at Moneyfacts.co.uk, said: “Historically, many older borrowers who had retired or were shortly due to do so, found it difficult to find a new mortgage deal. When the FCA reclassified RIOs as mainstream mortgages rather than equity release products in early 2018, a lifeline was thrown to many who may have previously felt trapped or not catered for.
“Those looking to take advantage of a RIO mortgage deal should consider their next steps carefully. Lifetime mortgages and equity release products may also be available, and so seeking independent financial advice could be invaluable in ensuring you select the right product for your circumstances.”