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Retirement Interest Only Mortgages

Up until recent years, mortgages for older borrowers were either standard mortgages or lifetime mortgages (AKA equity release). That was until the Retirement Interest Only mortgage (or RIO mortgages for short) were designed to sit somewhere between the two.

However,  retirement interest only mortgages aren’t suitable for everyone. You should carefully consider all of your options before proceeding to make sure you get the right result.

What is a retirement interest only mortgage?

A retirement interest only mortgage is essentially a hybrid of a standard mortgage and a lifetime mortgage.

For some people, the issue with a standard mortgage is that there is usually a maximum age. This is based on your age at application and/or at the end of the mortgage term.

The potential issue with a lifetime mortgage is that some people are put off by the thought of rolled up interest. Even if an interest only lifetime mortgage is selected to avoid this, the potential loan amount offered by the lender may be lower than required based on age. Longer early repayment charges can also be an issue and many not be suitable for everyone.

The retirement interest only mortgage was created to help solve these problems.


How do retirement interest only mortgages work?

Like a standard mortgage, retirement interest only mortgages (RIOs) are based on affordability. Depending on the lender, sources of income that could be considered are –

  • Earned income
  • Pension Income
  • Pension Pots
  • Investment Income
  • Rental Income

The lender will also check for sustainability in retirement as this is viewed as a long term mortgage.  This includes making sure that for joint mortgages, in the event of death of one of the borrowers, the survivor could afford the mortgage in their own right.

Monthly interest payments are made in the same way as a standard interest only mortgage. The lender will also put a charge on your property, the same way as with a standard mortgage, which means you still own 100% of your home.

The key differences are the term and the repayment vehicle. For these points, this is where retirement interest only mortgages are similar to lifetime mortgages. There is no maximum term and the plan will be to repay the loan in the event of death or moving into long term care.

However, a key difference to lifetime mortgages is that you have to make the monthly payment. With interest only lifetime mortgages, if you don’t make payments, this will trigger the roll up of interest. With retirement interest only mortgages, if you don’t make payments, you will be in arrears with your mortgage.


What can you use retirement interest only mortgages for?

Retirement interest only mortgages can generally be used for most purposes.

Examples include –


Is a retirement interest only mortgage the same as equity release?

Retirement interest only mortgages are not the same as equity release.

They share some similarities such as –

  • What the funds can be used for
  • No maximum term is required
  • The loan is to be repaid on death or moving into long term care
However, the key differences are –
  • You are contracted to make a monthly payment (rolled up interest is not an option)
  • You will have to review your product regularly (i.e. when a fixed rate ends)
  • However, early repayment charges will tend to be less restrictive
  • You could potentially borrow more (especially if you are younger)

What is the maximum LTV for RIO mortgages?

This will depend on the lender selected.

Generally speaking, the maximum loan to value (LTV) will be somewhere between 50 – 60%

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How old do you have to be to get a RIO mortgage?

In most cases, the minimum age requirement to get a retirement interest only mortgage will be 55.

The reason for this is that this is when most people can access their pension income.

What is the maximum age to get a RIO mortgage?

This will depend on the lender selected, but there may be options available that don’t have a maximum age.

This is the key difference to standard mortgages where a maximum age at application could be around 55 – 65 with the maximum age at the end of the term being around 80 – 95.

How much can I borrow with a RIO mortgage?

This will depend on your individual circumstances and your income in retirement.

Each lender has their own criteria around what income they will accept and how much they will consider.

As a rough guide, it may be possible to borrow 3 – 4.5 times your usable income which will depend on the lender.

As this is more like a standard mortgage in the way it is assessed, in addition to getting your income documents in order, it may be a good idea to check your credit score

Are RIO mortgages a good idea?

This really depends on your individual circumstances and priorities.

Firstly, you need to carefully consider whether any form of mortgage is right for you. Have you considered alternatives such as downsizing, using savings or exploring other options with your family?

If you’ve done this and a mortgage is the right route, you need to explore all of your options. This includes standard mortgages, lifetime mortgages and retirement interest only mortgages.

It’s important to note that products change all the time so keep an open mind when exploring your options. Get all of the facts around all of the options so that you can make good informed choices on what’s right for you.

What are the risks with RIO mortgages?

The first set of risks are the more obvious ones when taking out a mortgage. These include

  • Your home may be repossessed if you don’t keep up the repayments
  • This may affect your ability to take further credit in the future

With mortgages in retirement, further risks include –

  • Taking out a mortgage may reduce the value of your estate
  • How will the monthly payment affect your income in retirement?
  • Could you afford the payment if rates went up?

You might consider speaking with your family and perhaps seeking specialise advice around estate planning and/or wealth management before making any decisions (Please note, we can only advise on mortgages)

How can a mortgage broker help?

Speaking with a specialist broker who has experience in dealing with mortgages for older borrowers could help you make the right decisions.

Some people assume that ‘equity release’ is their only option. However, this is usually not the case.

You need to consider the alternatives and if a mortgage is the right thing to so, you need to consider all of the options available to you. Whether it’s a standard, retirement interest only or a lifetime mortgage, a specialist broker will give you the advice you need.

Please feel free to contact us if you have a question or if you would like to speak to an adviser for a no cost, no obligation chat.

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