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Retirement Interest-Only Mortgages

Are you looking to free up some funds to make the most of your retirement? A retirement interest-only mortgage could give you the financial injection you need.

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What is a retirement interest-only mortgage?

A retirement interest only (RIO) mortgage is a loan secured against your home that lets you pay monthly interest, without reducing the original amount (capital) you have borrowed.

It is only available to people over the age of 55 and has been designed to help older borrowers who may struggle to get a standard residential mortgage.

They’re similar to standard interest only mortgages, but with key differences. With most RIO mortgages in the UK, you only repay the loan when you sell your property, move into full-time care, or pass away.

Similar to a standard mortgage, you’ll have to prove you can afford the monthly interest repayments. To take out a retirement interest only mortgage, it’s worthwhile getting expert advice from a qualified mortgage adviser. That’s where the experienced team at Key can help.

Speak to one of our mortgage advisers


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How do retirement interest-only mortgages work?

A retirement interest only mortgage is secured against your home and can be used for many purposes.

During the mortgage term, you will only have to repay the interest owed on the mortgage. This will be done via monthly instalments.

The remainder of the capital is usually repaid when the plan ends and the property is sold. This is typically when you or the last remaining applicant pass away or move into long-term care. Your lender will then take their money from the sale proceeds and the remainder goes to your estate.

If you're a homeowner aged 50 or over, you could be able to take out one of these mortgages. However, it's important for you to speak to a qualified mortgage adviser before making any decisions.

Our friendly experts are on hand to answer your questions about interest only mortgages in retirement. They'll be able to explain exactly how they work, discuss the pros and cons, and help you talk through your options.

How much can I borrow with an interest only retirement mortgage?

Every retirement interest only mortgage provider will have different limits on how much you can borrow against your property.

There are certain factors lenders will take into consideration when you’re applying for a retirement interest-only loan. These include :

  • Property value

  • Income 

  • Loan size

The amount you could borrow will also be based on what you can afford. Lenders will look at your income and outgoings.

Use our free mortgage finder to see how much you may be able to borrow.

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How much do retirement interest only mortgages cost?

Each retirement interest only mortgage case is unique, find out more on what the costs of your retirement interest only mortgage will be.

The overall cost of your mortgage will depend on several factors, such as:

  • The amount you wish to borrow

  • The retirement interest only mortgage rates available to you.

  • Other charges, which may include solicitor's and surveyor's fees

  • Our advice fee is £1,299. This is usually payable when the mortgage completes.

Retirement interest only mortgage rates: What are the different types?

There are 2 types of interest rates available, your Key adviser will talk you through these options and the benefits and drawbacks.

Fixed interest rate

A fixed interest rate means your repayments will be the same for a set period, no matter how interest rates look across the mortgage market. This period is normally two years and above, though it varies by provider.

Variable interest rate

A variable interest rate means the rate you pay could go up or down, depending on several factors – for example, the Bank of England base rate or the lender’s standard variable rate. There are a number of variable-rate mortgages you can choose from and they vary by provider.

What can a retirement interest only mortgage be used for?

If you thought you were too old for a mortgage or you can’t find a conventional one to meet your needs, we can help you with impartial, tailored advice. We want to take the stress out of later-life borrowing.

You might be looking to take out a retirement interest-only mortgage because you want to:

  • Get a mortgage term extension but are unable to

  • Buy a retirement property that suits your needs better than your existing home

  • Release funds from your property to boost your retirement finances

  • Gift money to loved ones for a variety of reasons

Even if your bank or building society is unable to offer you a new mortgage, our specialist mortgage advisers can search the market to try and find the most suitable retirement interest-only mortgage for you.

If you want to better understand your options, enter your details into our later life mortgage finder to see what could be available to you. Alternatively, you can request a callback from one of our friendly experts or call 0808 252 9170.


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Advantages and disadvantages of retirement interest-only mortgages

If you’re looking at your options and aren’t sure if a RIO mortgage is right for you, here are some of the key advantages and disadvantages for you to consider.

Advantages

  • You could release funds tied up in your home to pay off existing debt

  • You could pass on an early inheritance

  • You won’t have to downsize to a smaller property

  • Your mortgage can be repaid early (although there may be an early repayment charge)
     

Disadvantages

  • You’ll need to prove you can afford the interest repayments through affordability checks

  • Your home will usually be sold off to repay the loan when you enter long-term care or pass away

  • Your home may be repossessed if you do not keep up repayments

 

Retirement interest-only mortgage vs lifetime mortgage

Although RIO mortgages share some similarities to a lifetime mortgage - both are loans secured against your home that allow you to access funds tied up in your property tax-free, they do have some key differences.

With a lifetime mortgage, you’re essentially borrowing a portion of your property’s value but don’t necessarily need to make monthly repayments. That's because the loan plus roll-up interest is repaid when the plan ends. For both RIOs and lifetime mortgages, the loan is typically repaid once the last applicant passes away or moves into long-term care and the property is sold.

The key difference with a RIO mortgage is that you need to pay the monthly interest. With a lifetime mortgage you have the choice not to, but can opt to make interest payments if you wish.


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Retirement interest-only mortgage vs retirement repayment mortgage

Retirement interest-only and retirement repayment mortgages both allow you to release tax-free cash from your home and are also similar in several other ways. For example, both are loans secured against your property, both require affordability checks and repayments are mandatory with either mortgage option.

The main difference between the two is with a RIO you only pay the interest each month, meanwhile with a retirement repayment mortgage, you can choose a mortgage option where your monthly repayment contributes towards both the capital and the interest.

As a result, the monthly repayments for a capital and interest mortgage are usually higher than that of a RIO.

However, a RIO is designed to last for the rest of your life, while a retirement repayment mortgage has a set end date. Meaning once you reach that date, after making all of your scheduled repayments, you’re mortgage-free - allowing you to pass on more of your property wealth to your beneficiaries.

Because of this, the overall cost of borrowing for a retirement repayment mortgage is usually lower than that of a RIO. So, while you typically pay more monthly towards a capital and interest retirement repayment mortgage, in the long run, it’s usually a cheaper borrowing option than a RIO; provided you can commit to the higher monthly outgoing.

Whether you’re considering a RIO, retirement repayment or a lifetime mortgage, it’s important to get advice from a qualified expert. Get in touch with the team at Key today to discuss your options further.


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How does the advice process work?

Whether you’re considering an interest only mortgage in retirement or equity release, it’s important to get advice from a qualified expert. Here's how the process typically works:

  • A member of our friendly, professional team will get in touch at a time that suits you

  • They'll take the time to understand more about you, your situation, and your needs

  • They'll hold an open, honest discussion about all the options available to you

  • If they don't think a retirement interest only mortgage is right for you, they'll tell you

  • If it is a suitable option, they'll search the market to find you the right retirement interest only mortgage provider


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Why choose Key as your later life mortgage adviser?

If you're considering a later life mortgage, it's recommended you get specialist advice to make sure you find the right product for your needs. So why should you choose Key as your adviser?

We're regulated experts

Key is regulated and a proud member of the Equity Release Council
 

Trusted award-winners

We've had 17,000+ excellent Trustpilot reviews and won 80+ awards, including Best Later Life Broker 2022

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Highly experienced

We have over 25 years' experience in helping over-55s with tailored advice on later-life products. We’ll never put you under any pressure to go ahead. If we believe an alternative product is better suited to you, we’ll tell you

Not sure what's right for you?

We can help you understand all the lending options available to you.
 

Speak to an adviser

Set some time aside with one of our advisers when it’s convenient for you.
 

Retirement interest-only mortgages FAQs

We know that you may still have some burning questions too. So, here are the answers to the queries we get asked the most. Still can't find the information you’re looking for? We're only a phone call away.

Yes, it may be possible to remortgage. However, it's important to bear in mind that you may have to go through further affordability checks if you would like to change lenders or increase the amount you are borrowing.

You may be able to use your loan to purchase a new property, which you may want for a number of different reasons:

  • To move from your existing home into another

  • To buy a second or holiday home that could improve your quality of life

  • To purchase a buy-to-let property that could allow you to increase your retirement income

Yes, taking out a RIO mortgage does not mean you have to stay at that property. If you decide to move, you will simply repay the loan from the proceeds of the sale. And you may be able to take out another interest only retirement mortgage on your new property, should you wish to do so.

Yes, as long as you continue to make the monthly repayments. If you fail to do so, you run the risk of your property being repossessed. This is because the loan is secured against your home as collateral for your retirement interest only mortgage provider.

At Key, our advisers can search the whole of the market to find you the ideal retirement interest only mortgage provider. Typically, they will source products from traditional lenders such as banks and building societies.

Yes, it could be possible to pay back larger amounts of your loan during the mortgage term to reduce how much you need to repay at the end. However, it's important to be aware that this could mean incurring early repayment charges. 

Find out more about retirement repayment mortgages.

Taking out a RIO mortgage will change your financial situation and could affect your eligibility for means-tested benefits. Rest assured, our expert advisers will offer guidance on whether any benefits you receive could be impacted.

Speak to one of our advisers about retirement interest only mortgages

It's important to consider whether a retirement interest only mortgage is right for you, and our friendly experts can help you make sense of it all. Get in touch with Key today and our mortgage advisers will talk through your options, offer impartial advice, and take the stress out of later-life borrowing.

Speak to one of our mortgage advisers

Call us on 0808 252 9170

Things to consider

 

RIOs and later life mortgages

  • A mortgage is a loan secured against your home
  • Your home may be repossessed if you do not keep up repayments
  • You should always think carefully before securing a loan against your home
  • Our advice fee of £1,299 is only payable on completion
Page last updated: Friday 06 October 2023