Lifetime Mortgages and Retirement Interest Only Mortgages

There are quite a number of people, arriving at or near retirement, with a mortgage still in place on their home. The challenge then is how to continue to afford the mortgage payments, when living on retirement income.

Others may have cleared their mortgage, but have low income coming into the household, whilst all their wealth is tied up in their property.

There are solutions that could be considered, but it is very important to understand the advantages and disadvantages of the various options. It is vital that professional advice is sort, so as to avoid the pitfalls of simply being drawn in by attractive screen advertising.

With both products, the loan is redeemed when you (or both of you if borrowing jointly) dies, or goes into long-term care.

But there are some very important differences to consider when deciding the best option. The table below summarises the key differences between Lifetime Mortgages and RIOs.

Lifetime Mortgage (Equity Release)

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

RIO (Retirement Interest Only Mortgage)

An Interest Only Mortgage available in later life. To understand the features and risks, ask for a personalised illustration.

Lifetime Mortgage (Equity Release)

You can choose to stop making monthly payments and the mortgage will convert to an interest ‘roll up’ basis.

RIO (Retirement Interest Only Mortgage)

You must make every monthly repayment die throughout the term of the mortgage or until it’s redeemed.

Lifetime Mortgage (Equity Release)

The amount you can borrow is based on your age and property value.

RIO (Retirement Interest Only Mortgage)

The amount you can borrow is based on your ability to pay the monthly interest payments. You are able to borrow more, but repayments can then be higher, potentially causing affordability issues.

Lifetime Mortgage (Equity Release)

You have the right to remain in your home until you (one or both of you if borrowing jointly) have died or move permanently into long-term care.

RIO (Retirement Interest Only Mortgage)

If you fail to make your monthly repayments, your home is at risk of repossession.

Lifetime Mortgage (Equity Release)

Most products come with a No Negative Equity Guarantee, meaning that you or your estate will never owe more than the value of the property when the mortgage becomes repayable.

RIO (Retirement Interest Only Mortgage)

If the property is worth less than the outstanding mortgage when it becomes repayable, you or your estate will pay any resulting shortfall.

This is not an exhaustive list. When considering Lifetime Mortgages or Retirement Interest Only Mortgages, there are a number of factors that must be taken into account. You will leave less to your estate therefore discussions with your family or beneficiaries is recommended. Always seek legal advice and check if this affects your tax position or state benefits entitlement.

We have specialists who discuss with you all the options that you need to consider before entering into these types of schemes. We can advise you and, if it proves to be the right solution for you and your particular circumstances, we can also arrange the mortgage.

As Independent Financial adviser and Mortgage brokers, we search the whole market to find the best provider and product for you.

Please contact us today for an initial conversation.

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