Retirement Interest Only Mortgages (RIO)
Retirement-interest only mortgages (RIOs) are a relatively new set of products designed to help older borrowers who may struggle to get a standard residential mortgage. They allow you to borrow against your property and only pay back the interest (and not the loan itself) each month. RIOs are very similar to standard interest-only mortgages but there are some key differences. With most RIO mortgages, you only repay the loan when you sell your property, move into residential care or die. But some retirement-interest only mortgages carry terms like a regular mortgage, meaning you either pay them back after a set number of years or when you reach a certain age - 90, for example. Rather than the onerous steps you have to take to prove your income with a standard residential mortgage, you only have to prove that you can afford the interest. Some retirement interest-only mortgages allow you to repay some capital as well as interest. This will cut down the size of your loan over time, meaning that more of your property can be passed onto your loved ones.
Equity release is a way of releasing the wealth tied up in your property, without having to sell it and move to
another home. You could choose to either borrow against the value of your home or sell all or part of it in exchange for a lump sum or regular monthly income. It may also be possible to take further monies from your property at a later date, if required. Equity release is designed to help customers over the
age of 55 who either own their property outright, or have small mortgages left to pay.
There are two main types of equity release, lifetime mortgages and home reversion plans:
A lifetime mortgage is a type of mortgage where you choose to extract your fund through a single lump sum or
in smaller amounts over time, to the maximum limit agreed with the provider. With a lifetime mortgage you can elect to retain some of the value of the property as an inheritance for family members.
By choosing a lifetime mortgage, you retain full ownership of your home and the interest on the loan can be fixed or rolled up. The loan and rolled up interest is repaid by your estate when you die or move into long-term care on a permanent basis. For a couple it would be based on the last to survive. Lifetime mortgages can offer the ability to make monthly interest payments in part or full, therefore maintaining the debt to the minimum amount before interest. The amount released depends on your age and the value of the property. Some providers are able to offer larger sums to those with certain past or present medical conditions, or lifestyle factors such as smoking.
Home Reversion Plans
A home reversion plan allows you to access all, or part, of the value of your property while retaining the right to
remain in it, rent free. With home reversion, the provider will purchase all, or a percentage, of your house.
You will understand precisely what portion of the property you have parted with and what has been ring-fenced for later use. The percentage you retain in your property always remains the same, regardless of the change in
property value, unless you decide to take further cash releases. At the end of the plan your property is sold and the sale proceeds according to the remaining proportions of ownership. Like lifetime mortgages, you may be able to access more funds, depending on your age and medical conditions. You will be provided with a tax-free cash lump sum or regular payments, and a lifetime lease guaranteeing you the right to stay in your property rent free for the rest of your life. There would be no day-today interference and no restrictions in treating the house exactly as before, as a private home to live in freely.
Before beginning to advise you and make any potential recommendations, your equity release qualified financial
adviser will work with you to understand your specific circumstances and goals. Your adviser will consider the following when determining the appropriate solution for you:
The options of downsizing to release the money you need, or whether you want to release money from your property while staying in your current home
Whether you wish to service the interest each month (like a mortgage for over 55’s) or receive the money required now, but not service it so the interest rolls up (Equity Release)
The proposed interest rate, fees and charges
Whether fixed early repayment charges are important to you
The importance of estate planning and the selection of a solution which offers an equity guarantee, or a means of paying the ongoing interest
If you require the flexibility to take more cash in the future
Solutions with a high loan to value, if you want to take the money now and again in the future
Drawdown solutions that allow you to take an initial lump sum but with a facility to take more later.