Retirement Interest-Only (RIO) Mortgages

Retirement interest-only (RIO) mortgages can be an excellent alternative to equity release for homeowners over the age of 50.

In this guide, we explore the benefits of RIO mortgages, the qualification criteria, and why they might be the right option for your needs and circumstances.

What is a Retirement interest-only mortgage & how do they work?

A retirement interest-only (RIO) mortgage is similar to equity release products in that it’s designed for older borrowers and doesn’t require repayment during their lifetime. However, with a RIO mortgage, you repay the interest on the loan through monthly payments, making it a popular choice for those who want to preserve more of their estate for inheritance.

RIO mortgages are also a viable option for individuals over 50 who may not meet the affordability criteria for a standard remortgage, particularly those with an existing interest-only mortgage.

Some people choose RIO mortgages as a direct alternative to equity release to access the equity in their home, whether for home improvements, retirement income supplementation, or other purposes.

A RIO mortgage can only be secured on your primary residence and functions similarly to a traditional interest-only mortgage. Monthly payments cover the interest charges, and there’s no set end date—the loan is repaid from the sale of your home, typically after you pass away or move into long-term care.

Eligibility criteria

Criteria for retirement interest-only (RIO) mortgages vary between lenders, but typically include the following:

• Age limits: You generally need to be over 50, or in some cases, over 55. For joint applications, some lenders require both applicants to meet the age limit, though not all impose this rule. Despite the product name, you do not need to be retired to qualify.
• Home ownership: You must own your main residential home outright or hold a minimum amount of equity in it, depending on the lender’s requirements.
• Property value and type: Most lenders require a minimum property value, usually between £80,000 and £125,000, although this can vary. Some lenders may be hesitant to lend on certain property types, such as ex-local authority houses or flats.
• Affordability: Since you'll be making monthly interest repayments, you must demonstrate sufficient income, which could come from earnings, pensions, or other asset-based wealth.
• Maximum Loan-to-Value (LTV): Generally, you can borrow up to 50-55% LTV, though some lenders may offer more flexible, bespoke assessments without a strict limit.

How to get a RIO mortgage

The best way to secure a competitive retirement interest-only (RIO) mortgage is to consult a specialist broker. Each lender offers different terms and conditions, and the criteria they require can vary significantly. Being turned down by one lender doesn't necessarily mean you won’t qualify with another.

Additionally, some lenders only offer their RIO mortgage products through intermediaries, who have specialised knowledge of the market and can help you find the most suitable option for your needs.

How much can you borrow?

Your borrowing for a retirement interest-only (RIO) mortgage is typically based on a maximum loan-to-value (LTV) ratio and your home’s value. The lower your loan amount relative to your property's value, the easier it usually is to qualify.

Additionally, lower LTV loans often come with more favourable interest rates.

Here’s an example of how much you may be able to borrow at 50% LTV, depending on the value of your home:

The table below shows the maximum you could potentially borrow at 60% LTV:

Pros and cons

The table below highlights the main advantages and disavantages of RIO mortgages to help you decide whether this is the right option for you:

Retirement interest-only mortgage providers

RIO mortgages are generally not offered by most high street banks. Instead, they are available through a range of building societies and specialist lenders that focus on later life lending products, including retirement interest-only (RIO) mortgages and equity release.

Given the level of competition in this niche market, consulting a broker is highly recommended.

Here are some examples of RIO lenders:

• Scottish Building Society

• Leeds Building Society

• The Cambridge Building Society

• LiveMore Capital

Alternatives to consider

Lifetime Mortgages

Lifetime mortgages share similarities with retirement interest-only (RIO) mortgages, as both allow you to avoid repaying the loan balance during your lifetime. However, lifetime mortgages are a type of equity release product available exclusively to individuals aged 55 and over, and they are more tightly regulated. As such, you'll need advice from a certified equity release specialist to set one up.

With a lifetime mortgage, you borrow against your home's value, and the interest is typically rolled up (added to the loan balance) and repaid from your estate when you pass away or move into long-term care. This can make lifetime mortgages less suitable for those wanting to leave a substantial inheritance, although you can choose to make voluntary repayments on the interest to manage the total loan balance. In contrast, RIO mortgages require monthly interest repayments as a condition.

Mortgages for Pensioners

Approaching retirement doesn't limit you strictly to later-life lending products like RIO mortgages or equity release. There are lenders that offer more traditional mortgage options, such as interest-only or capital repayment mortgages, to retirees, with relatively flexible terms.

While most lenders won’t offer a mortgage if you will be 75 or older at any point during the term, some are willing to lend up to ages 80-90. A few even have no specific age limits, as long as you can demonstrate the ability to make the required payments, whether from pension income or other financial resources.

Frequently Asked Questions