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What is the difference between a TIO and a RIO mortgage? – Pallett

by: Alison Pallett, managing director of sales at LiveMore
  • 24/06/2022
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What is the difference between a TIO and a RIO mortgage? – Pallett
There has been a rise in interest-only mortgages being taken out by older people, according to UK Finance data relating to new lending for borrowers aged over 65.

In 2021, term interest-only (TIO) mortgage numbers rose by five per cent year-on-year from 2,519 to 2,653 and retirement interest-only (RIO) mortgages increased by 26 per cent from 1,262 to 1,594. The numbers may be relatively small, but it is significant they are rising and if the over 50s were included in this data the figures would be much higher. 

It is important for brokers to be aware of interest-only mortgages as they could be the right product for some clients but, as always, it depends on their circumstances. 

Interest-only means the borrower pays the interest on the loan but still owes the capital at the end of the term. They were popular pre-global financial crash but after 2007 the Financial Conduct Authority (FCA) came down hard on them, especially as there was no requirement to have a repayment vehicle in place to pay down the capital.  

The situation is different now and there have been huge improvements in product innovation – meaning today’s interest-only mortgages are safer than those of old.  

But what is the difference between a TIO and a RIO? 


The finer detail

A TIO is taken out for a stated number of years, for example the maximum term LiveMore offers is 30 years.

RIOs are relatively new products and were given the green light by the FCA to be standard mortgages in March 2018. They were predominantly designed to help interest-only borrowers coming to the end of their term with no way to repay the original capital debt. Only a few lenders initially bought products to market but there are now more options and RIOs are starting to gather pace. 

With RIOs there is no set-term, so borrowers keep the mortgage until they pass away or move into long-term care. If it is a joint mortgage and one person passes away or moves into care, the person left can remain in the home. After one of these life events happens, the property is then sold, and the original loan repaid. 

The minimum age for a TIO at LiveMore is 50 years old and for a RIO it is 55 and borrowers do not necessarily have to be retired. They just need to prove they can afford the monthly repayments.  

TIOs and RIOs can be taken as fixed rates for a number of years, such as five, 10 or 20 years. With RIOs, given there is no set-term, there is the option ‘fixed for life’ – we refer to it as the longest fixed rate in the UK mortgage market. 

Interest-only may be a small part of the market just now but it is growing in awareness and popularity and there are many borrowers, especially aged 50 to 90+, who could benefit. 

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