RIO borrowers ‘facing steep hike in interest rates’

Homeowners planning on taking out one of the new retirement interest-only (RIO) loans face paying a “shocking” premium for continuing to delay the repayment of their capital balance, according to Royal London.

RIO loans have been billed as a possible solution for anyone who has not saved up enough to repay the capital owed at the end of their interest-only mortgage, as they allow homeowners to continue to borrow on an interest-only basis into their retirements, without being forced to move through the need to downsize or repossession.

There are around 550,000 interest-only borrowers approaching retirement in the UK, according to UK Finance. However, the latest analysis by Royal London shows that the average rate of interest on a RIO loan is 3.62% – roughly double the rate available on the mainstream mortgage market, where a typical best-buy mortgage rate is currently 1.65%.

On an average interest-only loan size of £66,000, payments at 3.62 per cent would be £199 a month – more than double the £91 someone on a typical two-year fixed rate of 1.65 per cent would pay monthly.

Royal London personal finance specialist, Becky O’Connor, explained: “Homeowners who have the dreadful deadline of the end of their mortgage term looming with a capital balance still to repay, may now look towards new RIO loans for salvation.

“However, there is a rate premium for the privilege of continuing to borrow on an interest-only basis and it could cost you double your current monthly interest-only payments. For many borrowers this kind of cost hike, coming at a time of reduced income, will be hard to manage. Such a potential cost hike is a reason not to assume these loans will be a good option for homeowners considering them in retirement.”

    Share Story:

Recent Stories


Subscribe to our newsletter to receive breaking news by email.

Every Mortgage Tells a Story
Vida Homeloans is the award-winning specialist mortgage lender for residential and buy to let customers who may not fit the criteria currently demanded by high street lenders. View this video now on how Vida help those in their personal circumstances or their investment strategies.