Best retirement interest-only mortgage deals

What is a retirement interest-only mortgage?

Retirement interest-only mortgages, often referred to as RIO mortgages, work in a similar way to a standard interest only mortgage and are available to over 55s. With a retirement interest-only mortgage, you borrow money against your home and just pay the interest each month. Capital borrowed is only paid off when the property is sold, usually when the mortgage holder moves into long-term care or dies. This can make monthly payments more manageable compared to a standard repayment mortgage.

RIO mortgages are a good option if you:

• Want to release money in retirement
• Don’t want to downsize yet
• Can afford the monthly interest payments

You’ll need to show that you can keep up with payments for the rest of your life, but the loan term doesn’t end at a set age.

This means it could be a great option if you’re looking for greater financial flexibility in your retirement, as you don’t have to make the larger monthly payments that would apply to a repayment mortgage.

However, the capital does need to be repaid when your property is sold, which could reduce the value of any inheritance you want to leave, so you’ll want to weigh up the different options before making your decision.

Why choose a retirement interest-only mortgage?

These mortgages can be a helpful solution for later-life borrowers. You might consider one if:

• You’re coming to the end of an interest-only mortgage and need a new deal
• You want to access equity without increasing your monthly payments
• You have a good pension income or other retirement income

They offer flexibility without needing to sell your home or downsize. And unlike equity release, you keep full ownership of your home and only pay the interest, not the capital.

How retirement interest-only mortgages work

You borrow a lump sum secured on your home and pay just the interest each month.

The original loan stays in place until:

• You die
• You move into long-term care
• You sell your home voluntarily

At that point, the loan is repaid from the proceeds of the sale.

Lenders will check your affordability carefully, usually looking at:

• Your pension income
• Any other retirement income
• Your outgoings and debts
• Your age and health

Who can get a retirement interest-only mortgage?

To qualify, you’ll normally need to:

• Be aged 55 or older
• Own your home (or have a small mortgage remaining)
• Show that you can afford the interest payments

Lenders will also check your credit history and how sustainable your income is in retirement. If you're applying with a partner, both of you will be assessed, even if only one is earning.

Most RIO mortgage providers will have an age bracket which you must be within when applying for your mortgage. This is usually between 55 and 80. Most lenders will also have a maximum loan-to-value ratio, which is often around 55% but again, varies between lenders.

How to find the best retirement mortgage deals

Not all lenders offer RIO mortgages, so it’s a good idea to speak to an adviser who knows the market.

We work with over 90 lenders, including those who specialise in later-life borrowing. We can help you find a deal with low monthly payments, good interest rates, and flexible terms.

Some lenders will even let you make extra repayments if you want to reduce the loan over time.

If you want to discuss the options that might be available to you, get in touch with L&C today. Our expert team will conduct a RIO mortgages comparison and find you the best deal to suit your needs.

Making repayments on a retirement interest-only mortgage

Your monthly payments will only cover the interest on the loan. This helps keep them low, especially compared to standard repayment mortgages.

For example, if you borrow £100,000 at 4% interest, you’d pay around £333 per month.

You won’t reduce the amount you owe unless you make overpayments. But you’ll also avoid the compounding debt that comes with equity release.

If your income drops in future, some lenders offer options like payment holidays or switching to another type of deal.