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If you're approaching retirement and still have an interest-only mortgage you're not sure how you'll pay off, you now have another option to consider – taking out a retirement interest-only mortgage. A possible alternative to equity release and a way to clear your current mortgage debt without needing to downsize, a retirement interest-only (RIO) mortgage works in a similar way to traditional interest-only deals, so is now the time to consider one?
Last year, the Financial Conduct Authority estimated that there were some 1.67 million full interest-only and part-repayment mortgages outstanding in the UK, and many of those – an estimated 81,400, according to previous predictions from the regulator – are due to mature this year. This may not be a problem for those who know how they're going to repay the capital, but those without such a plan may be in for a worrying few months.
Previously, the options for such borrowers were fairly limited; many will be over the age of 60, and remortgaging in retirement used to be all but impossible given strict affordability rules, which meant many were faced with the prospect of losing their homes. Now however, the rules have been relaxed, and RIO mortgages are becoming increasingly common.
RIO mortgages allow homeowners to remortgage their existing loan under similar terms to their current arrangement, meaning they only need to repay the interest for the term of the loan – which can be a lot more achievable for those on a pension income. Then, when the borrower dies or goes into care, the property will be sold and the mortgage repaid.
However, even within this area, providers are becoming increasingly flexible. In the months since such loans have been widely available – it was only in April last year that the regulator relaxed the rules and separated RIO mortgages from equity release, and widened the appeal of such loans in the process – numerous providers have got in on the action and are offering a wide range of options, with some allowing borrowers to repay part of the capital as well (thereby leaving more of an inheritance to loved ones) and others offering set repayment dates.
Many big-name lenders now offer these mortgages, giving peace of mind to those who would prefer to borrow from a high street bank or building society. This includes Post Office Money and Leeds Building Society, while Nationwide began trialling such products in November, and there are plenty available from smaller mutuals as well (such as Marsden, Vernon, Bath, Mansfield, Family and Scottish Building Societies).
Ultimately, RIO mortgages could be a great option for those unsure how they're going to repay their interest-only mortgage debt, but as with any financial decision, getting the right advice is essential. You can speak to our adviser partners at Premier Financial Group to get started, and see if you should consider this later life borrowing solution.
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