A retirement interest-only mortgage will run for a customer’s life – but what happens when they die or move into long-term care? Mark Gregory explains the process for a reader who is helping their mum find a later life mortgage
The Question
I am helping my mother research equity release and one option we are looking at is retirement interest-only mortgages. There is one question we have regarding these plans, which we would like an answer to.
We understand the interest is paid monthly but the actual loan is repaid when the home is eventually sold. What would happen, therefore, to the repayments if my mother were to die in the period before the house is actually sold on?
Would a family member need to find a way to make repayments? I am conscious house sales can take several months so we would be interested in understanding how this would work.
The Answer
Your question clearly demonstrates that you are carefully considering your plans and you have the welfare of your mother and her estate in mind. I am sure you will be aware that a Retirement Interest Only Mortgage (RIO) is designed to run for the rest of a customers’ life or until they leave their home when they need long-term residential care.
The amount a customer can borrow on a RIO mortgage, is based on two parameters – a loan-to value of their property which dependent upon the lender can be up to a maximum of 75% of the value of their home. Secondly the maximum loan amount is then based on an assessment of their affordability from their retirement income.
Interest-only payments are required for the full-term and there is also the potential opportunity to make flexible payments to repay some of the capital subject to a maximum amount each year, typically 10% with some providers.
To answer your question, the executors or personal representatives of an estate must inform the provider of an event, including when a customer dies or leaves the property because they need long-term care.
The executors or personal representatives must continue to fulfil the obligations to ensure a default is avoided, which could possibly result in a repossession order, and therefore interest payments will need to be paid until the property is sold.
If you require a personalised illustration or a copy of the providers terms and conditions, please contact one of our whole of market, expert advisers on 0800 088 5930 who are here to help and guide you without obligation.
They would only charge a fee, once they have completed a full assessment of your mothers’ circumstances, and only when you and your mother are 100% satisfied and any plan recommended completes.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
