Interest only retirement mortgage
Discussion
trickywoo said:
Do you have any plans / capacity to downsize?
Have thought about it but only caveat is nothing around me that would give me the garage space that I would want for the toys …it’s why I bought the place I’m in [this is piston heads after all]..I guess another option is to up the £ that I donate to her currently to help with what might be a bigger mortgage if she moves house …early days in the thought process.
Will check in with our resident mortgage expert when he is back from a break
Ignoring all the issues involved, is anyone aware of a simple RIO calculator?
Amount borrowed £10k
Current interest rate for RIO (more or less)
Monthly repayment ?
For £100k add a zero.
All the calculators I can find are only preliminary information for a sales call with all detail concealed.
Amount borrowed £10k
Current interest rate for RIO (more or less)
Monthly repayment ?
For £100k add a zero.
All the calculators I can find are only preliminary information for a sales call with all detail concealed.
mtvessel said:
Ignoring all the issues involved, is anyone aware of a simple RIO calculator?
Amount borrowed £10k
Current interest rate for RIO (more or less)
Monthly repayment ?
For £100k add a zero.
All the calculators I can find are only preliminary information for a sales call with all detail concealed.
If you know the interest rate, then the rest is a very simple formula in Excel.Amount borrowed £10k
Current interest rate for RIO (more or less)
Monthly repayment ?
For £100k add a zero.
All the calculators I can find are only preliminary information for a sales call with all detail concealed.
It's interest only, so there's no problem with amortization - it's simply interest rate * total sum borrowed / 12
Making it slightly easier
Amount borrowed £12K
Interest rate 10%
Monthly repayment £100
If you don't know the interest rate then you're stuck.
BTW - the biggest issue is if you choose not to pay the interest - but I don't think you can do this with a RIO, only with Equity Release.
Ducati996R said:
Just wondering if anyone has any experience/views on these just mulling over if it s the right thing to do to give my daughter some money now when she needs it more than her having to wait for me to pop my clogs
Interest only retirement mortgage.
A warm and cuddly set of words.
Debt, retirement and unknown future interest rates, that combination could be a recipe for disaster.
Bank of England Base Interest Rate peaks
January 1985 = 13.88%
October 1989 = 14.88%
"Oh that will never happen again", we hear people say (probably including those selling the mortgages).
History often tends to repeat mistakes of the past.
If it is of any interest to you, there is one way to gift money to your daughter, which is free of any Inheritance Tax risk.
Regular gifts out of excess income.
For those fortunate enough to have an income that exceeds their spending, then that excess can be gifted.
Just set up a standing order to your daughter, no limit is mentioned, and make sure there is proof to show that it really is excess income, and not capital.
Jon39 said:
Interest only retirement mortgage.
A warm and cuddly set of words.
Debt, retirement and unknown future interest rates, that combination could be a recipe for disaster.
Eg. House worth £500K, you decide to borrow 30%, £150K. Interest rate at 4%, £6K/year, £500/month. They stay stable for a while, but eventually start to rise, and when they hit say 10%, maybe 10 years later, you bail out, as the £1250/month mortgage is too much. But you no longer owe 30% of your house, as your house is now worth £650K, you only owe 23% approx, £150K. You still have the full £500K which is all yours, which is what you would have sold for 10 years ago.
TwigtheWonderkid said:
Jon39 said:
Interest only retirement mortgage.
A warm and cuddly set of words.
Debt, retirement and unknown future interest rates, that combination could be a recipe for disaster.
Eg. House worth £500K, you decide to borrow 30%, £150K. Interest rate at 4%, £6K/year, £500/month. They stay stable for a while, but eventually start to rise, and when they hit say 10%, maybe 10 years later, you bail out, as the £1250/month mortgage is too much. But you no longer owe 30% of your house, as your house is now worth £650K, you only owe 23% approx, £150K. You still have the full £500K which is all yours, which is what you would have sold for 10 years ago.
Yes, that should work, but the last thing during what should be a happy retirement that anyone wants, is financial worry.
At present, we are noticing some homes that have been advertised for sale for more than 2 years and even with reduced asking prices, remain unsold. We never know, but hopefully none of those owners are forced sellers.
An illustration of another risk factor.
Debt can be a 'killer'. Even the UK government might eventually realise that. More tax-payer money is now being spent every year paying debt interest, than on education ! Which is more important for the future of a nation?
If you want to extract money from your house and you're over 55 there are 2 main ways to do it:
Retirement Interest Only (RIO)
Equity Release
A RIO is closer to a traditional mortgage. The acceptance criteria are quite strict and you have to have provable income (for everyone who will be living in the house). I don't believe that there is an option to roll up the interest with a RIO - you have to pay the interest every month.
Equity Release has no real acceptance criteria apart from age and equity in the property. With Equity Release you can choose whether or not you pay the interest every month. If you don't, the interest rolls up and you end up owing interest on interest.
As with traditional mortgages, the things that matter most are the interest rate payable and whether it is fixed (and for how long) or variable. Other things such as redemption penalties are also relevant. Interest rates are generally higher than traditional mortgages and I believe that Equity Release has higher rates than RIOs
Equity Release tends to have interest fixed for life. At the moment this is probably not much of an incentive, but back when base rates were 0.5% you could get a lifetime fix on an Equity Release loan at around 2.75%, which at the moment isn't looking like a bad deal. However, as has already been said no-one knows what that will look like in 10 or 20 years time. It might be an outstanding deal, or it might not.
Retirement Interest Only (RIO)
Equity Release
A RIO is closer to a traditional mortgage. The acceptance criteria are quite strict and you have to have provable income (for everyone who will be living in the house). I don't believe that there is an option to roll up the interest with a RIO - you have to pay the interest every month.
Equity Release has no real acceptance criteria apart from age and equity in the property. With Equity Release you can choose whether or not you pay the interest every month. If you don't, the interest rolls up and you end up owing interest on interest.
As with traditional mortgages, the things that matter most are the interest rate payable and whether it is fixed (and for how long) or variable. Other things such as redemption penalties are also relevant. Interest rates are generally higher than traditional mortgages and I believe that Equity Release has higher rates than RIOs
Equity Release tends to have interest fixed for life. At the moment this is probably not much of an incentive, but back when base rates were 0.5% you could get a lifetime fix on an Equity Release loan at around 2.75%, which at the moment isn't looking like a bad deal. However, as has already been said no-one knows what that will look like in 10 or 20 years time. It might be an outstanding deal, or it might not.
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