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Mark Gregory, Founder and CEO at Equity Release Supermarket
www.equityreleasesupermarket.com
Tel: 0800 678 5955
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Question
Can I transfer a RIO?
I am considering taking out a retirement interest-only mortgage (RIO). My situation is that I have an interest-only mortgage and, at 64, am due to retire next year.
If in future I decide to move somewhere else or downsize, can I transfer the RIO to the new property? If not, are there any other options I might be able to consider?
Answer
A RIO mortgage is certainly an option for you to consider if you are looking to repay your current interest-only mortgage and don’t have another vehicle (such as savings) with which to do so.
You don’t tell me if you have a partner (who is also on the deeds to the property), or if you are single. This is important if you are considering a RIO as lenders assess your affordability to meet the monthly interest repayments for joint applicants based upon not only your income now, but on the income of the ‘surviving’ partner – should anything happen to you in the future.
The ‘affordability issue’ is a stumbling block for many looking to take out a RIO mortgage and many have been turned down because of it. If you cannot prove your retirement income both now and in the future, you may struggle to take out a RIO mortgage.
RIO mortgages are portable and so if you were to take one out and move again in the future, you could take your mortgage with you. Alternatively, if you are looking to downsize, you could repay your RIO with the proceeds.
As RIOs are residential mortgages there are a few other things you need to consider about them.
Firstly, as mentioned above, you must be able to prove that you have the income to meet the monthly interest repayments both now and in the future – as you do on your current mortgage.
Secondly, all the costs associated with a residential mortgage will also apply to a RIO both now and in the future. Many RIOs usually offer fixed terms (e.g. fixed rates for two to 10 years) and so at the end of the term, you’ll have pay all the costs again, e.g. any product/application fee, solicitors and valuation fee.
Thirdly, the rate of interest you pay with a RIO may change in the future (either more or less), depending upon market conditions at the time.
And lastly, RIOs are residential mortgages and so your home may be repossessed by the lender, if you are not able to meet your monthly repayment commitments in the future.
I would suggest that you also consider an interest-only lifetime mortgage as they work in the same way as a RIO mortgage, while also offering a number of advantages.
With an interest-only lifetime mortgage, you repay the interest accruing on the initial amount borrowed monthly and so when the plan ends, only the initial amount borrowed is repayable. The main differences between an interest-only lifetime mortgage and a RIO mortgage are that with an interest-only lifetime mortgage –
• There are no affordability criteria to pass – for either you or your partner
• Interest rates with an interest-only lifetime mortgage are fixed for life
• Fees are only payable once, if your remain in situ
• Your home cannot be repossessed on the grounds of affordability
• If you cannot continue to meet your monthly interest repayments in the future, you can simply switch to a roll-up interest lifetime mortgage, where the interest accrued and amount borrowed are repaid when your plan ends
• Interest rates are comparable, if not lower than for RIO mortgages and residential mortgage standard variable rates
• Interest-only lifetime mortgages can now offer fixed term early repayment charges, downsizing protection and voluntary payments of up to 10% per year with no penalty
As a next step, I’d suggest you speak to your local, independent Equity Release Supermarket adviser. As we offer a whole of market service, we’ll be able to talk through all your lending options in retirement.
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Question
Will my age impact how much I can release?
I am 72 and my husband is 79 and we have made some initial enquiries about equity release. I understand the amount we can borrow depends on our age and health. As our age ranges are seven years different, whose age will be taken into consideration? Also what level of equity can we access in this situation?
Health-wise, I have no problems at all and my husband had a stroke 12 years ago and is taking medication but otherwise has a clean bill of health.
Answer
You are correct, as the amount that lenders will offer you does depend upon your age and health as well as the value of your property and where it is in the UK.
The age is based upon that of the youngest borrower, in your case, yourself.
Your husband’s health condition wouldn’t be taken into account as he is the eldest. If he was the youngest, his past health record could have allowed you to potentially borrow more, or opt for a lower interest rate, using what is known as an ‘enhanced’ plan.
As you are aged 72, you’ll be able to borrow a maximum of around 47% of the value of your home. As always, and part of any advice to clients is to only take an amount that’s required in the first 12 to 18 months.
Why not use one of our range of calculators to get an idea of the amount you could borrow? As ever, your local independent adviser at Equity Release Supermarket will be more than happy to talk through all the options with you.
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Question
Can I get equity release if I already have a mortgage?
I am in my late 60s and for various reasons am still paying a mortgage on my home. Would equity release be an option for me in this situation?
It would be good to know, in principle, if equity release is available to people who still have mortgages, albeit with just a few years to run, so I know whether it’s worth my while proceeding.
Answer
The question I’d initially ask is what are your reasons for wanting to repay your mortgage?
If it was simply down to a few more years remaining on it, and you wish to extend paying interest on a later life mortgage, then both a RIO and lifetime mortgage could be considered.
If you wished to cease paying interest altogether, the good news is that you can take out a lifetime mortgage (the most popular type of equity release plan) while you still have a residential mortgage.
The caveat is that you must then repay your mortgage with the amount you’ve borrowed through equity release.
As you are in your late 60s and from what you’ve said, there isn’t much outstanding on your current mortgage, you may be able to borrow enough with a lifetime mortgage to both repay your current mortgage and also have a substantial amount of money left over to spend as you wish.
Again, contact a later life specialist to understand your options in your situation.
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Question
Interest repayments – how do they work?
I wondered if you could enlighten me on a question I have about equity release, please? I have noticed there are some quite tempting interest rates on offer at the moment.
How do customers who release equity pay the interest? Do they make monthly payments, or do the interest payments get rolled up and paid upon the sale of the property? Also, are rates generally fixed or variable?
Answer
Lifetime mortgages offer you different ways to manage the interest accruing on them. Which you choose is entirely up to you and your personal circumstances.
With an interest-only lifetime mortgage, you repay the accruing interest on the amount you’ve borrowed each month. That way, when your plan ends, the original balance is all that is outstanding and needs to be repaid back to the lender.
You can also further reduce the amount to be repaid with interest-only lifetime mortgages by taking advantage of the voluntary repayments feature on many plans, whereby you can repay 10% of the initial amount borrowed each year.
Combined, these flexible lifetime mortgages work very much like a capital and repayment, residential mortgage – so that when your lifetime mortgage ends, you are in control of how much you finally repay.
But to take advantage of both interest-only lifetime mortgages and the voluntary repayments feature, you’ll need disposable income to do so, albeit there are no affordability checks made by lifetime mortgage lenders.
Another feature of an interest-only lifetime mortgage is that, if at some point in the future, you cannot, or simply do not wish to repay the monthly interest, you can switch to a roll-up lifetime mortgage, where the interest accrues and compounds until final repayment.
Alternatively, if you simply don’t want to repay any monthly interest, you can opt for a lump sum lifetime mortgage. Here, the interest accrued, and the amount borrowed are only repaid when your plan ends.
That said, lump sum plans do allow you to make voluntary repayments of up to 10% of the amount borrowed each year, so that if you do find that you have additional funds in the future, you can use them to manage the future balance of your plan.
Lastly, you could opt for a drawdown lifetime mortgage, where once you have borrowed an initial amount of at least £10,000, the balance of what you can borrow (known as the facility) is held by the lender for you to dip into (at no extra charge) as and when you want to in the future.
As interest is only charged on the amount borrowed, drawdown lifetime mortgages are a popular and cost-effective way to manage interest accruing. Many also offer the voluntary repayment feature, so again this is an option to further reduce the interest accruing on your plan.
The vast majority of lifetime mortgages also come with fixed interest rates for life, so you have the peace of mind of knowing exactly how much interest is accruing on your plan over time.
With so many plans to choose from, with so many features, I recommend you speak to your local Equity Release Supermarket adviser. They will be able to give you an independent view of every plan from all the lenders in the market.
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