Interest-only repayment means that the total amount of the original loan still needs to be repaid at the end of the mortgage period. As they come towards the end of their mortgages, these homeowners face either having to sell their home and move out, or remortgage.

For some, the value of their home may not be enough to repay the original loan and have enough left over to buy another home.

New regulations for RIOs

To help these borrowers, the Financial Conduct Authority (FCA) reclassified Retirement Interest Only (RIO) mortgages in March 2018 so they can be sold as standard mortgages rather than under the restrictions that apply to the selling of equity release products.

As a result, many more RIO mortgages are now available to older home owners.

Demand creates new options

There were no mortgage products available in 2014 which could come to an end when the borrower was aged between 80 and 84 (that is, five-year mortgages granted to 75 year-olds).

In February 2019 there were 1,078 products available to this age group, according to figures from finance data provider Moneyfacts.

Would-be borrowers who will be aged 85 or over at the end of a mortgage had eight times as many deals to choose from, compared with just five years earlier.

What are Retirement Interest Only mortgages?

They are similar to standard interest-only mortgages for younger borrowers, except that:

• Borrowers only have to prove they can afford the monthly interest repayments
• The loan is only paid off when you sell the house, move into long-term care, or die

What’s the difference between an RIO mortgage and equity release?

With equity release, also known as “lifetime mortgages” you borrow a portion of your property’s value, but you don’t make monthly repayments.

The cost of the borrowing is added on to the total loan and is only repaid when you die, or move into long-term care and the property is sold.

With equity release there will be less value left in your property to pass on to your family when you die, compared with an RIO mortgage.

You are strongly advised to get independent financial advice if you are considering taking out equity release in your home.

Independent advice about ROI mortgages

And divorce may mean that they face new financial challenges mid-life, which many parents want to help with.

All these are reasons why older home owners may be looking to “share the family wealth” by releasing some of the value locked away in their homes.

• A buy-to-let property which will generate rental income
• A holiday property which the whole family can use
• A “downsizer” property which has come available before they need to move into it (especially if there is a shortage of suitable properties close by to family)

Or home owners may want funds to make other income-generating investments.