RIO Mortgage or other options? Ill health

JillyC8

I'm looking for some advice from anyone in the know about this type of mortgage. I'm currently owing £67k on a house valued at approx. £240k. I'm 59 and working full time, earning £36k. My mortgage has 10 years 6 months to run. I want to look at switching to an RIO mortgage for various reasons - mainly because my health isn't great and I'm hoping to move to part-time hours in future so I want to lift the burden of the higher mortgage payment. My pensions are forecast to pay out £9,500k a year (Defined Benefit), and around £2,500 a year (2 x Defined Contribution) from the age of 65 and I'm due a full govt. pension at age 67. 
Is this something I would qualify for? I have children so want to maintain some inheritance for them, but given the value of the house and future valuation, I'd be happy to do this as it would still provide for them on my death once the debt was paid off. Any advice would be gratefully received.

MWT

Certainly something you need to talk to a suitably qualified advisor about, but based on what you've said so far it looks at least possible as long as you can plausibly bridge the 8 year gap between now and receiving your state pension, and as long as the private pension forecasts are reasonable and do not assume your continued full-time work, rather than the part-time you envisage. 

Most important missing detail to confirm is will this be in your name along and are you the only occupier of the property?

JillyC8

Thanks for your input MWT. The mortgage is in my name only and I currently live with my children, who are now adults. My defined benefit pension and one of the defined contribution benefits are deferred so my figures are based on the actual amounts I've quoted as I'm no longer contributing. The third defined contribution I've taken the current value although I'm still paying into it so that should increase from the amount quoted. I don't plan to give up work but may need to ease the burden/pressure of the mortgage payment if I need to reduce my hours at some point. I can access my pensions now if I need to, although obviously they wouldn't be worth as much.
I'm currently in a fixed deal for another 18 months so would have to pay an ERC if I switched now.

MWT

Given you have adult children living with you, I would suggest you give some thought to how the RIO mortgage would be repaid if you needed to enter long-term care at some point in the future?

If you do not anticipate them remaining in the property for much longer then it is perhaps less vital, but if you consider this to be a long-term arrangement then live insurance might deal with the RIO in the case of your demise, but needing long -term care would still be a problem as the RIO would become immediately repayable in that circumstance.

The other consideration of course is that rather than changing to a RIO is it practical for your adult children to contribute to the mortgage payments and reduce the burden in that way?

JillyC8

Hi MWT, they do currently contribute but I don't expect them to remain living here for much longer than the next couple of years. I have life insurance covering my current mortgage so could consider that if they were to remain here for some reason (highly doubtful!). My other option is to downsize when they move on but would prefer to stay if I could.
It's also possible I may be able to pay down some of the debt myself, depending on how I get along workwise and potentially using a lump sum from one of my pensions.
Good point re going into care but then I would expect the property would be sold and the debt paid off, then anything above that would pay for the care or form part of my estate, is how I understand it. Are there any real downfalls to an RIO mortgage? I guess I just want to lessen the burden sooner than I thought I would.

MWT

Generally the usual advice is to down-size as the first option and consider life-time mortgages of any type only after that. 

Going into care is not an issue if there are no others living in the property as the property can then just be sold as you suggest.

Any adults resident, but not on the mortgage, will usually be required to sign a waiver of their right to occupy the property anyway.

The 'downfalls' with a RIO are typically just the need to be able to show sufficient guaranteed income into retirement and the fact that you do still have to pay the interest throughout the rest of your time in the property. So if those estimates of your pension income do not include any escalation or index linked increases then you may want to review that...

Do understand aspects like earlier repayment penalties and your ability to down-size after taking the RIO, as you may want/need to change the RIO product in the future if the prevailing interest rates were to fall significantly or if you needed to move to a rolled-up interest product to avoid the need to make interest payments.

All of this will be covered by the advice you will need to take, but good to go into this with a few questions in mind.