Prior to the 2008 credit crunch interest-only mortgages were popular with borrowers who often failed to take fully into account the need to actually repay the mortgage at the end of its term. Payments of interest were made with no repayment of any part of the capital and presumably the idea in each case was that when the moment for repayment came, the property would then be sold, prices would have increased, and they would then be able to purchase another property. Alternatively, investments that were to be used to repay the mortgage have failed to perform to expectations.
As matters have turned out, there are thousands of people who have an interest only home loan which is coming to an end but there is no obvious means of how the capital sum is to be repaid.
Accordingly, the lenders could repossess the properties and the borrowers could lose their homes. The Guardian reports that, partly in order to help these people, the Financial Conduct Authority last year gave the green light to a new type of interest only deal. These are called “Retirement Interest Only” Mortgages (RIO) and are slightly more expensive than standard home loans.
RIO Mortgages are best suited to those who have an interest only deal that is coming to the end of its term but who have been left high and dry after the investment plan that was supposed to pay off their debt has under performed - or maybe they never set one up in the first place. It is also possible that RIO Mortgages could also appeal to people who want to unlock some equity in their home to finance home improvements or help children and grandchildren buy their first home. They are effectively standard home loan deals with one difference in that the mortgage does not have a set end date, and carries on until a specified life event is triggered, ie the borrowers death or the date that they move into a care home. Ultimately, the loan is repaid from the sale of their property.
Should you wish to investigate the situation further please contact Mark Ollier firstname.lastname@example.org