A retirement interest-only (RIO) mortgage has elements of both a regular mortgage and an equity release mortgage. You must generally be over the age of 55 (although some lenders will accept clients as young as 50) and the mortgage term has no end. It will run until you either die or move into a residential care home; or, if there are two of you, when the remaining party does.

The mortgage is then repaid from the sale of the property; with the remaining equity paid to your estate for your beneficiaries. As you will need to make payments of interest (but not capital) throughout the term, the mortgage is assessed on affordability of the payments.

However, in this case, as there may be a situation where one borrower is left to pay the mortgage after the death of the other and consequently the household income will have reduced, lenders are more stringent and will consider what regular income (widow’s or widower’s pension, for example) will be available should that happen.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Your home is worth £400,000. You take out a retirement interest-only mortgage of £50,000. Over the mortgage term, you make all the interest repayments. When you die or go into residential care, there will still be an outstanding mortgage of £50,000. Any increase in the value of your home after paying off the loan and interest belongs to you or your family. 

To understand the features and risks associated with this type of mortgage, you must ask for a personalised illustration.