Retirement Interest-Only Mortgages

A retirement interest-only mortgage is a mortgage designed for older borrowers who can afford monthly interest payments but may not want, or be able, to repay the capital during their lifetime.

Your monthly payments cover the interest charged on the mortgage. They do not normally reduce the amount you originally borrowed.

The capital is usually repaid from the proceeds when the property is eventually sold. This may happen when:

• You choose to sell your home
• The last borrower dies
• The last borrower moves permanently into long-term care
• A fixed mortgage term ends, where applicable
• Another repayment event specified by the lender occurs

Because you continue paying the interest, the mortgage balance should not increase provided all required payments are made and no additional borrowing, fees or unpaid interest are added.

You borrow an agreed amount secured against your main home and make monthly payments to cover the interest.

For example, if you borrowed £100,000 at an interest rate of 5%, the initial interest would be approximately £5,000 a year or £416.67 a month. This is a simplified example and does not include fees or changes in the interest rate.

The £100,000 capital would remain outstanding unless you made additional repayments. It would normally be repaid when the property was sold.

Your actual monthly payment will depend on:

• The amount borrowed
• The interest rate
• Whether the rate is fixed or variable
• Any fees added to the mortgage
• Any additional borrowing
• Whether you make capital repayments

The lender will assess whether you can afford the monthly payments both now and throughout your expected retirement.

Lenders set their own eligibility requirements. You may need to:

• Meet the lender’s minimum age requirement
• Own or be purchasing a suitable property
• Use the property as your main residence
• Have sufficient equity in the property
• Meet the lender’s minimum income requirements
• Demonstrate that the monthly payments are affordable
• Have an acceptable credit history
• Meet the lender’s property and loan-size criteria

Many lenders set a minimum age of 50 or 55, although some do not have a specific minimum age. Maximum ages and mortgage terms also vary.

The amount you can borrow will usually be based on your sustainable retirement income and the value of your property.

Retirement mortgage criteria vary considerably between lenders. MortgageKey can help by:

• Reviewing your current and future income
• Assessing the affordability of monthly payments
• Considering the position of a surviving joint borrower
• Reviewing your property and existing mortgage
• Comparing suitable RIO mortgages from available lenders
• Explaining fixed and variable interest rates
• Comparing RIO mortgages with lifetime mortgages and other alternatives
• Discussing the effect on benefits and inheritance
• Helping you complete the mortgage application
• Supporting you through to completion

Our recommendation will be based on your needs, circumstances and ability to afford the mortgage.