Retirement mortgages

Find out what your mortgage options are after you’ve retired and if a retirement interest-only mortgage could be right for you.

This page is for guidance only. Better.co.uk does not currently offer retirement mortgages.

What is a retirement mortgage?

A retirement mortgage can refer to any mortgage you get when you have retired or are approaching retirement age.

Getting a standard residential mortgage after you have retired can be difficult. This is because you will almost certainly have a lower and less reliable income than when you were in work, and lenders need to be confident you can repay a mortgage before they are willing to lend to you.

However, there are still options available to you as an older borrower. It is still possible to get a standard mortgage, provided you can prove you meet the lender’s affordability criteria.

You may need to agree to a shorter mortgage term to comply with the lender’s age limits. Most mortgage providers set a maximum age by which time you need to have repaid the mortgage.

For example, if the maximum age to repay a mortgage is 80, and you apply when you’re 68, the longest term you could get would be 12 years.

An alternative option designed for older borrowers is a retirement interest-only mortgage (ROI).

How does a retirement interest-only mortgage work?

A retirement interest-only mortgage is very similar to a standard interest-only mortgage; however, there are two main differences:

The loan is designed to be paid off when you pass away or move into long-term care
You only need to prove that you can make the monthly interest payments

As the loan is only repaid after you’ve died or moved into care, you don’t need to have another repayment vehicle in place to pay off the balance.

They are similar to equity release products like lifetime mortgages; however, they are classed as standard mortgages and are offered by several high-street lenders.

RIO mortgages tend to have higher interest rates than standard repayment mortgages, so it’s worth shopping around to find the best retirement interest-only mortgage rates.

Can I get a retirement interest-only mortgage?

RIO mortgages are aimed at older borrowers, usually at least 55 years old. However, the specific age limit can vary from lender to lender.

You will also need to prove that you can afford to make the interest payments each month. These will typically be lower than a repayment mortgage, but you still need to provide proof of your retirement income and pass the lender’s affordability checks.

Some lenders will set other eligibility criteria; for example, you must have a certain amount of equity in your property or an LTV of no more than a certain percentage, typically around 60%.

Should I get an interest-only retirement mortgage?

An RIO mortgage could be a helpful option if your existing interest-only mortgage is coming to an end. If you don’t have a way of paying off the balance of your mortgage at the end of the term, and you can still afford the interest repayments, an RIO mortgage could be a way of staying in your home.

You can also use an RIO mortgage if you’re mortgage-free and are looking for a way to boost your retirement income. It could also be used to help family members onto the property ladder.

To help you work out if an RIO mortgage is right for you, weigh up the pros and cons.

Pros and cons of retirement interest-only mortgages

Pros of retirement interest-only mortgages

Stay in your home

They are a viable way to stay in your home after your existing interest-only mortgage comes to an end

More inheritance

They can mean you’ll have more to pass on as inheritance compared to other equity-release products

Pay off early

You could still pay off your mortgage early, but early repayment charges could apply

Avoid compound interest

Paying monthly interest means you avoid building up expensive compound interest

Cons of retirement interest-only mortgages

Monthly payments

You still need to make the monthly interest payments and prove you can afford them to be eligible

Your home will be sold

Your home will be sold to repay your loan after you die or move into care, meaning you’ll have less to pass on to your family

Your home is at risk

Your home could be repossessed if you can’t keep up with repayments

Limited borrowing

How much you can borrow will be limited based on your retirement income, age and property's value

There are other borrowing options available as a pensioner or if you’re approaching retirement.

If you want to access the money tied up in your home to help fund your retirement, consider an equity release product.

These work in a very similar way to RIO mortgages, but you can usually receive cash without the need to make monthly payments. The two main types of equity release are:

Lifetime mortgages are available once you’re over 55 and allow you to release money from your home as a lump sum or a regular payment. You effectively borrow the money against the value of your home and only repay the loan once you’ve passed away or gone into long-term care.

The interest you’re charged can be rolled up with the balance, so there’s no need to make regular repayments. However, this can mean the amount that is repaid when your home is sold is a lot more than the initial loan amount.

With home reversion, you sell all or part of your property to the plan provider. They then effectively own or co-own your property, but you retain the right to live in it for the rest of your life.

You will only be offered a percentage of your property's market value, usually no more than 60%. How much you get will depend on your age and health. The longer the provider expects you to live, the lower the offer will be, as it will be longer before your home is sold and they get their money back.

Our expert says...

“Getting a mortgage when you’ve retired can be more difficult, but there are still options available, especially if you’re looking to access the equity in your home.

Retirement interest-only mortgages can help you borrow once you’ve stopped working. To determine if an RIO mortgage might work for you, speak to one of our expert advisors.”

- Jon Bone \ CeMAP-qualified

It is possible to get a mortgage once you’ve retired and are receiving your pension, but it can be more difficult.

To get a mortgage, the lender needs to see that you have sufficient income to cover the mortgage payments. To prove this, you will need to provide evidence of your pension income and pass all of their affordability checks.

You can improve your chances of getting a mortgage by checking your credit record and taking steps to improve your score if it’s low.

You should also look to clear any debts you have before you apply. This should reduce your commitments and outgoings, which will boost your affordability.

There is no legal age limit for taking out a new mortgage, but most lenders have their own criteria. There are two common limits they can set:

Maximum age when applying for a mortgage
Maximum age when the mortgage term ends

Some lenders set a limit for both, some set only one limit, and some do not set any limits at all.

The maximum age limit for applying can range from 65 to 80, and the maximum age limit when the mortgage term ends can be as high as 90.

It is possible to move home if you have a retirement interest-only mortgage. Most lenders will let you transfer the loan to your new property if it meets their lending requirements.

If you are downsizing, you could repay all or part of the mortgage with the money you make on the sale, but you may need to pay early repayment charges.

How much you can borrow will depend on two main factors:

The total value of your home
Your affordability, i.e. how much you can afford to repay in interest

Typically, what you can borrow will be determined by an affordability assessment up to a maximum percentage of your property’s value, typically 60%.

Assuming you can afford the repayments, that means you won’t be able to borrow more than 60% of the value of your property. For example, if your home is worth £400,000, the most you could borrow would be £240,000.