RIO Mortgages

perdusys

Having read on here about mortgages for later life, I'd like some clarification on Retirement mortgages.  We have a house worth around £600K, and due to COVID, our plans to see out the remaining 6 years on our mortgage, costing us £740 a month has not been possible.  So, we are now retired with state pensions, 67 and 66 years old with £53K left to pay off.  I know we can downsize but would rather wait a few years for this due to family commitments.  It would be good to reduce our monthly payments rather than use up our pension fund.
Am I correct after having read some other threads that it is possible to take out a mortgage that is interest only and would therefore leave the capital to be paid when we do decide to downsize?  Thus protecting inheritance for our sons.

MWT

perdusys said:

Am I correct after having read some other threads that it is possible to take out a mortgage that is interest only and would therefore leave the capital to be paid when we do decide to downsize?  Thus protecting inheritance for our sons.

It is a little bit more complicated than that, but something close to that is possible if you pick the right product.

Generally the RIO mortgage repayment is only triggered and payable without an ERC if you both die or move into long term care, if you simple want to move house then there is a risk that the ERC is triggered.

There are some RIO products that have added a 'Down-sizing protection' feature which means that if you want to downsize you can port the mortgage to the new property if it qualifies, or if it doesn't simply repay the mortgage without the ERC.

The other issue you may face is that with a RIO you do have to pass an affordability test as you are committing to pay the interest each month.

If that is a difficulty you can always go for an equity release product and get one which allows, but does not require that you make payments each year, so there is no affordability test, but you can still avoid the interest rolling up by making voluntary payments.

[Deleted User]

RIO through standard mortgage companies is quite tough on affordability as it needs to remain affordable on a single income even in joint mortgage cases. This is because the interest needs to be paid even after death of one of the clients and the interest cant be rolled up so affordability is key.
Equity release is a lot more flexible qnd you can choose to pay thr interest each month to stop the balance increasing

perdusys

Deleted_User said:

RIO through standard mortgage companies is quite tough on affordability as it needs to remain affordable on a single income even in joint mortgage cases. This is because the interest needs to be paid even after death of one of the clients and the interest cant be rolled up so affordability is key.
Equity release is a lot more flexible qnd you can choose to pay thr interest each month to stop the balance increasing

Thanks for the quick responses.
Is it right to assume that you cannot just take out an ER product that includes downsizing protection, but after any specified terms, choose yourself to repay the outstanding balance? ie is the decision ours or the companies?
We really only want to do this so that we can reduce our monthly outgoings.  We currently plan to draw the mortgage repayment from our uncrystallised pension funds on a monthly basis.  It was trying to reduce this payment that was the purpose of enquiring about later life mortgages.   Obviously the remaining 6 year term takes us to my husband being 75.  How do mortgage companies treat pension pots as an income source?  

MWT

perdusys said:

Deleted_User said:

RIO through standard mortgage companies is quite tough on affordability as it needs to remain affordable on a single income even in joint mortgage cases. This is because the interest needs to be paid even after death of one of the clients and the interest cant be rolled up so affordability is key.
Equity release is a lot more flexible qnd you can choose to pay thr interest each month to stop the balance increasing

Thanks for the quick responses.
Is it right to assume that you cannot just take out an ER product that includes downsizing protection, but after any specified terms, choose yourself to repay the outstanding balance? ie is the decision ours or the companies?

The decision is yours, the difficulty is the Early Repayment Charge (ERC).

If you just decide to repay it all then the charge is triggered.

To put some numbers on it, with the right product choice you might be looking at a 10% ERC reducing by 1% each year until it hits 1% where it would stay at that level for 5 years then go to 0%.

perdusys

MWT said:

perdusys said:

Deleted_User said:

RIO through standard mortgage companies is quite tough on affordability as it needs to remain affordable on a single income even in joint mortgage cases. This is because the interest needs to be paid even after death of one of the clients and the interest cant be rolled up so affordability is key.
Equity release is a lot more flexible qnd you can choose to pay thr interest each month to stop the balance increasing

Thanks for the quick responses.
Is it right to assume that you cannot just take out an ER product that includes downsizing protection, but after any specified terms, choose yourself to repay the outstanding balance? ie is the decision ours or the companies?

The decision is yours, the difficulty is the Early Repayment Charge (ERC).

If you just decide to repay it all then the charge is triggered.

To put some numbers on it, with the right product choice you might be looking at a 10% ERC reducing by 1% each year until it hits 1% where it would stay at that level for 5 years then go to 0%.

Thank you, that gives us something to work on.  How much roughly would you expect the interest to be on £53000?  I guess its all down to how much the payment would reduce by from the £740 we are paying now, and if we are able to pass their affordability criteria.  Will sny mortgage broker deal with these mortgages or would we need a specialist in the field?

MWT

There are two very different products in this thread, the ERC numbers I gave were for an equity release product as that was what you asked about.

The RIO is mostly just a different type of mortgage and you'll find plenty of brokers able to handle that for you, or you can go direct. The RIO requires the affordability check and requires that you pay the interest.

An equity release product does not require an affordability check, and paying the interest (or making other capital repayments, usually no more than 10% P.A.) can be optional, but does require you to take regulated advice. The cost of that advice ranges from free to over £1,000 or more so pick carefully if you go that route.

I can't comment on the RIO interest, but an equity release product is likely to be between 2-3% given the low LTV and your ages.

perdusys

Thank you so much for all your help.