Retirement Interest only Mortgages

What are your housing circumstances at the moment Tilly ? . I can't think of anything where starting a new interest only mortgage would be a good idea , but depending on your individual situation this may not be the case .

My understanding is that, as long as you pay the interest when required, they are not a bad thing. It's when the interest is added to the principal that problems arise.

We took one out 5 years ago to pay for an extension to our then home. We approached the Nationwide, both our banker, and we had previously had a mortgage with them. The amount we were borrowing was less than 10% of the value of the house and the payments were, for us, easily manageable. We have just sold the house and have repaid RIO.

There are 2 considerations when thinking about a RIO mortgage, firstly, how long you want it for. We took ours out knowing we would probably be downsizing within 5 years and the extension, apart from improving our house and making it more enjoyable for us to live in would significntly increase the houses value and saleability.

How long you want the mortgage for leads to the second key consideration. Can you comfortably afford the monthly interest payment, not just now but in the future. We knew that our RIO mortgage would only be for 5 or 6 years so knew we could manage the interst payments easily

But we are the generation that remembers 10% plus mortgage interest rates. I do not know how old you are but if you are in your 60s and wanted a long term mortgage you could be paying interest for 20 plus years or more. Could you manage the interest rates if they doubled - or trebled?

I think that, with caution a RIO can be very useful if you want to extend a house or adapt it for old age living, but if it is to improve your standard of living I would be less sure. In that case you would be better with equity release.

I say that because with equity release, you do not have to role up the interest. You can pay the interest rate monthly as with an RIO so that it acts like an RIO, but you have the flexibility that if something changes, or, long term, interest rates escalate, you can later decide to role up some or all of the interest rates.

I know someone with an IRO mortgage. I was told that in three years time it will come to term but she will have to move out of her home because the bank will then own it?

I didn't think this could be right? Could it?

keepingquiet

I know someone with an IRO mortgage. I was told that in three years time it will come to term but she will have to move out of her home because the bank will then own it?

I didn't think this could be right? Could it?

You have got me thinking. We always knew ours would be relatively short so length did not come into it. However I have googled it and yes, someRIO's do have a fixed length

But what is not true is: she will have to move out of her home because the bank will then own it She will be in exactly the same position as anyone else whose interest only mortgage ends. She can pay back the capital or she can take out another RIO mortgage.

Since the mortgage will only have been for part of the value of the home, and it was probably a 15 year mortgage to begin with
and on average house prices have increased by 75% over the last 12 years, there is no reason why the mortgage company should insist on a repossession, and depending on the value of the house in the first place, even if she sells and repays, she will probably have sufficient capital left to buy another smaller property.

Here is a link to a helpful site on RIO mortgages. www.moneyhelper.org.uk/en/homes/buying-a-home/retirement-interest-only-mortgages

Thanks MOnica.

This info came second hand because the person in question is burying her head and not thinking/talking about it.

I doubt she has the means to buy back the capital, as you say but the house is certainly worth more than when her late partner bought it. By the time the term expires she will be well into her seventies, so doubt she would get another mortgage.

As I say I don't know the full details but as I was only discussing it yesterday I thought I would find out so thanks for the link as well.

keepingquiet I would think she could either take out another RIO or she could opt for Equity release, as I said, you can opt to pay the interest on an Equity Release mortgage, you do not have to let the interest roll up.

When we took out our RIO we did try to get an Equity release mortgage instead because the interest rate was lower. We had every intention of paying the interest and repaying the capital when we moved. However, we were turned down on a technicality to do with the house we then owned, which didn't apply to an RIO

Just add, we were 78 when we took out our RIO. Age is no limiter where RIO or Equity release is concerned.

This lady needs to stop burying her head and to realise that her worries are needless and ruining her life, because a quick investigation will soon show that she can just take out another RIO or alternatively Equity Release.