Retirement Interest Only mortgages
Discussion
Given that there seems to be much collective wisdom and experience here, I’d value your thoughts on this.
I have a property worth c.£750k with well over 50% equity in it, and currently have an interest-only mortgage. My current discounted deal ends in a few months’ time, but I have been told by my financial adviser that I am very unlikely to get another interest-only deal.
The thing is, we’re both late 50’s, we have no kids, literally nobody would benefit from us paying off the house in its entirety, so interest-only works for us. It’s likely that by the time we snuff it or go fully gaga, it will be worth over £1m squids. I am likely to be working for another 7 – 8 years. We have a healthy (and steadily growing) pension pot to which I contribute £40k per year, and repayments are not a problem – probably indefinitely.
A bit of Googling suggests a Retirement Interest Only (RIO) mortgage might be the thing for us. However, as our FA didn’t suggest it, is that because RIO’s are not all they’re cracked up to be, or is my FA not all he’s cracked up to be?
Anything I’m missing? Anyone had any experience with these?
I have a property worth c.£750k with well over 50% equity in it, and currently have an interest-only mortgage. My current discounted deal ends in a few months’ time, but I have been told by my financial adviser that I am very unlikely to get another interest-only deal.
The thing is, we’re both late 50’s, we have no kids, literally nobody would benefit from us paying off the house in its entirety, so interest-only works for us. It’s likely that by the time we snuff it or go fully gaga, it will be worth over £1m squids. I am likely to be working for another 7 – 8 years. We have a healthy (and steadily growing) pension pot to which I contribute £40k per year, and repayments are not a problem – probably indefinitely.
A bit of Googling suggests a Retirement Interest Only (RIO) mortgage might be the thing for us. However, as our FA didn’t suggest it, is that because RIO’s are not all they’re cracked up to be, or is my FA not all he’s cracked up to be?
Anything I’m missing? Anyone had any experience with these?
FlyingPanda said:
Given that there seems to be much collective wisdom and experience here, I’d value your thoughts on this.
I have a property worth c.£750k with well over 50% equity in it, and currently have an interest-only mortgage. My current discounted deal ends in a few months’ time, but I have been told by my financial adviser that I am very unlikely to get another interest-only deal.
The thing is, we’re both late 50’s, we have no kids, literally nobody would benefit from us paying off the house in its entirety, so interest-only works for us. It’s likely that by the time we snuff it or go fully gaga, it will be worth over £1m squids. I am likely to be working for another 7 – 8 years. We have a healthy (and steadily growing) pension pot to which I contribute £40k per year, and repayments are not a problem – probably indefinitely.
A bit of Googling suggests a Retirement Interest Only (RIO) mortgage might be the thing for us. However, as our FA didn’t suggest it, is that because RIO’s are not all they’re cracked up to be, or is my FA not all he’s cracked up to be?
Anything I’m missing? Anyone had any experience with these?
Does your mortgage end soon or just your initial discounted rate?I have a property worth c.£750k with well over 50% equity in it, and currently have an interest-only mortgage. My current discounted deal ends in a few months’ time, but I have been told by my financial adviser that I am very unlikely to get another interest-only deal.
The thing is, we’re both late 50’s, we have no kids, literally nobody would benefit from us paying off the house in its entirety, so interest-only works for us. It’s likely that by the time we snuff it or go fully gaga, it will be worth over £1m squids. I am likely to be working for another 7 – 8 years. We have a healthy (and steadily growing) pension pot to which I contribute £40k per year, and repayments are not a problem – probably indefinitely.
A bit of Googling suggests a Retirement Interest Only (RIO) mortgage might be the thing for us. However, as our FA didn’t suggest it, is that because RIO’s are not all they’re cracked up to be, or is my FA not all he’s cracked up to be?
Anything I’m missing? Anyone had any experience with these?
Why did your FA say that you wouldn't get another IO mortgage?
FlyingPanda said:
It’s just the discounted rate that ends soon. The advice was “IO mortgages are pretty much impossible to get without a vehicle in place to repay the capital”
They aren't impossible to get.................it just depends on your circumstances, predominantly your current level of income.Ah OK, that could be a factor. I own my own business (employed by my own Ltd Co.) and despite making c.£150k pa profits, my salary is less than £10k pa and the majority of the rest of it comes out in the form of dividends and pension payments. I am looking for a mortgage of c£340k. Does that sound possible?
FlyingPanda said:
It’s just the discounted rate that ends soon. The advice was “IO mortgages are pretty much impossible to get without a vehicle in place to repay the capital”
How WOULD you intend to repay the mortgage (if you’re not intending to set up a repayment vehicle)?Are you assuming that if/when both you and Mrs FP leave this world the bank repossesses and then recovers its loan by sellling the property?
FlyingPanda said:
Ah OK, that could be a factor. I own my own business (employed by my own Ltd Co.) and despite making c.£150k pa profits, my salary is less than £10k pa and the majority of the rest of it comes out in the form of dividends and pension payments. I am looking for a mortgage of c£340k. Does that sound possible?
Sounds like your FA just didn't fancy it..........depending on what your drawings are in total (salary & dividends) then it's looks feasible to me............Countdown said:
How WOULD you intend to repay the mortgage (if you’re not intending to set up a repayment vehicle)?
Are you assuming that if/when both you and Mrs FP leave this world the bank repossesses and then recovers its loan by sellling the property?
Well that was the reason behind the original question regarding RIO mortgages. The property would be sold on death or dribbling and then the mortgage co would get their share.Are you assuming that if/when both you and Mrs FP leave this world the bank repossesses and then recovers its loan by sellling the property?
At least, I think that’s how RIO mortgages work, but I would like to learn more.
From personal experience i know that these products,whilst freely promoted are very difficult to access.The percentage offered is usually very low and they all require firm repayment proposals to back up any offer.
I went down the equity release route.Funders of this product have cleaned up their acts in recent years.
My financial advisor got us a deal with Canada Life which allows the loan to be repaid by up to 10% of the original loan each year.The loan can be repaid in total at anytime,for any reason not just going into care or dieing as before.
Rates for this product are low at the moment, with very little proof of income required.Loans are usually up to 55% of valuation.
We were helped by Steve Paterson of Later Life Money, 07467424368.( no relative,just a satisfied client).
Worth exploring this option.
I went down the equity release route.Funders of this product have cleaned up their acts in recent years.
My financial advisor got us a deal with Canada Life which allows the loan to be repaid by up to 10% of the original loan each year.The loan can be repaid in total at anytime,for any reason not just going into care or dieing as before.
Rates for this product are low at the moment, with very little proof of income required.Loans are usually up to 55% of valuation.
We were helped by Steve Paterson of Later Life Money, 07467424368.( no relative,just a satisfied client).
Worth exploring this option.
FlyingPanda said:
Well that was the reason behind the original question regarding RIO mortgages. The property would be sold on death or dribbling and then the mortgage co would get their share.
At least, I think that’s how RIO mortgages work, but I would like to learn more.
You don't need at RIO at this stage..........At least, I think that’s how RIO mortgages work, but I would like to learn more.
Sarnie said:
You don't need at RIO at this stage..........
I guess I was just looking at what would be the easiest to get. Bearing in mind that any reduction in monthly payments means I don’t have to work so hard, and I have little interest in the amount of final equity in my property, then RIO/ equity release etc all look worth exploring.I realise they’re not universally popular, but is there any reason I shouldn’t be considering them, given my circumstances?
FlyingPanda said:
I guess I was just looking at what would be the easiest to get. Bearing in mind that any reduction in monthly payments means I don’t have to work so hard, and I have little interest in the amount of final equity in my property, then RIO/ equity release etc all look worth exploring.
I realise they’re not universally popular, but is there any reason I shouldn’t be considering them, given my circumstances?
...because you are young enough and have sufficient earnings to get a regular mortgage and a standard, market leading rate.......I realise they’re not universally popular, but is there any reason I shouldn’t be considering them, given my circumstances?
FlyingPanda said:
Ah OK, that could be a factor. I own my own business (employed by my own Ltd Co.) and despite making c.£150k pa profits, my salary is less than £10k pa and the majority of the rest of it comes out in the form of dividends and pension payments. I am looking for a mortgage of c£340k. Does that sound possible?
Be Interested how you manage to pay 40k into your pension when your salary is only 10K? Unless of course you are paying the tax bill that goes along with it, but surely it somewhat defeats the object. Or do you mean you only have 10k left after sacrificing.martinbiz said:
FlyingPanda said:
Ah OK, that could be a factor. I own my own business (employed by my own Ltd Co.) and despite making c.£150k pa profits, my salary is less than £10k pa and the majority of the rest of it comes out in the form of dividends and pension payments. I am looking for a mortgage of c£340k. Does that sound possible?
Be Interested how you manage to pay 40k into your pension when your salary is only 10K? Unless of course you are paying the tax bill that goes along with it, but surely it somewhat defeats the object. Or do you mean you only have 10k left after sacrificing."The biggest advantage of paying into a pension through your limited company is that the salary threshold doesn’t apply. This means you can keep taking a salary of £8,788 a year and still be able to pay up to £40,000 into your pension every tax year.
Even better, your company’s pension contributions are allowable business expenses. As a result, you won’t have to pay Corporation Tax on them. Nor will you have to pay Employers’ National Insurance or deduct income tax from your salary.
That said, for the contributions to count as allowable business expenses, you’ll have to be able to prove that the company made them ‘wholly and exclusively’ for business purposes.
According to HMRC’s guidance in BIM46030 and BIM46035, you’re in the clear if the company’s contributions:
Are reasonable.
Don’t exceed the company’s annual profits. So, if your company turns a profit of £30,000 in 2020-21, £30,000 is the maximum the company can contribute to your pension that year.
Are similar to the contributions your company is paying to others who are doing work of similar value. So, if another director is putting in as many hours and as much effort as you are, the company should be making similar pension contributions on their behalf too."
Edited by tighnamara on Friday 11th June 13:17
tighnamara said:
Paying into a pension through your limited company
"The biggest advantage of paying into a pension through your limited company is that the salary threshold doesn’t apply. This means you can keep taking a salary of £8,788 a year and still be able to pay up to £40,000 into your pension every tax year.
Even better, your company’s pension contributions are allowable business expenses. As a result, you won’t have to pay Corporation Tax on them. Nor will you have to pay Employers’ National Insurance or deduct income tax from your salary.
That said, for the contributions to count as allowable business expenses, you’ll have to be able to prove that the company made them ‘wholly and exclusively’ for business purposes.
According to HMRC’s guidance in BIM46030 and BIM46035, you’re in the clear if the company’s contributions:
Are reasonable.
Don’t exceed the company’s annual profits. So, if your company turns a profit of £30,000 in 2020-21, £30,000 is the maximum the company can contribute to your pension that year.
Are similar to the contributions your company is paying to others who are doing work of similar value. So, if another director is putting in as many hours and as much effort as you are, the company should be making similar pension contributions on their behalf too."
Thanks for that, although the OP does say "I" contribute 40k a year, but I guess the he means the co does on his behalf"The biggest advantage of paying into a pension through your limited company is that the salary threshold doesn’t apply. This means you can keep taking a salary of £8,788 a year and still be able to pay up to £40,000 into your pension every tax year.
Even better, your company’s pension contributions are allowable business expenses. As a result, you won’t have to pay Corporation Tax on them. Nor will you have to pay Employers’ National Insurance or deduct income tax from your salary.
That said, for the contributions to count as allowable business expenses, you’ll have to be able to prove that the company made them ‘wholly and exclusively’ for business purposes.
According to HMRC’s guidance in BIM46030 and BIM46035, you’re in the clear if the company’s contributions:
Are reasonable.
Don’t exceed the company’s annual profits. So, if your company turns a profit of £30,000 in 2020-21, £30,000 is the maximum the company can contribute to your pension that year.
Are similar to the contributions your company is paying to others who are doing work of similar value. So, if another director is putting in as many hours and as much effort as you are, the company should be making similar pension contributions on their behalf too."
Edited by tighnamara on Friday 11th June 13:17
Edited by martinbiz on Friday 11th June 13:41
Hi OP - please update this thread when you work out what to do. I'm in pretty much an identical situation to you. I need the same amount of money and I have the same employment status. Possibly the only difference is my LTV will be around 35% - oh and I have 2 kids, so I care a small amount about residual value. Also, I'm not making any pension contributions because mine is full up.
I spoke to my financial advisor, and his view is that it won't be a problem to get a standard mortgage with someone like the Halifax. Now, I've already spent an hour on the phone with them, as that's who my existing mortgage is with, and they were pretty rigid - no chance of interest only, and I needed to prove my income via tax returns. According to my financial advisor, they have a different type / level of access to the Halifax - and going through him they will assess my income based on invoice payments and basically take his word for it that I have the vehicles in place to re-pay the loan at the end of the term. He'll also waive any setup fees as I'm an existing client.
I plan to test this out in the next 3 or 4 months when I've cleared a couple of short term debts and have a few months of invoices for my current contract.
I spoke to my financial advisor, and his view is that it won't be a problem to get a standard mortgage with someone like the Halifax. Now, I've already spent an hour on the phone with them, as that's who my existing mortgage is with, and they were pretty rigid - no chance of interest only, and I needed to prove my income via tax returns. According to my financial advisor, they have a different type / level of access to the Halifax - and going through him they will assess my income based on invoice payments and basically take his word for it that I have the vehicles in place to re-pay the loan at the end of the term. He'll also waive any setup fees as I'm an existing client.
I plan to test this out in the next 3 or 4 months when I've cleared a couple of short term debts and have a few months of invoices for my current contract.
omniflow said:
Hi OP - please update this thread when you work out what to do. I'm in pretty much an identical situation to you. I need the same amount of money and I have the same employment status. Possibly the only difference is my LTV will be around 35% - oh and I have 2 kids, so I care a small amount about residual value. Also, I'm not making any pension contributions because mine is full up.
I spoke to my financial advisor, and his view is that it won't be a problem to get a standard mortgage with someone like the Halifax. Now, I've already spent an hour on the phone with them, as that's who my existing mortgage is with, and they were pretty rigid - no chance of interest only, and I needed to prove my income via tax returns. According to my financial advisor, they have a different type / level of access to the Halifax - and going through him they will assess my income based on invoice payments and basically take his word for it that I have the vehicles in place to re-pay the loan at the end of the term. He'll also waive any setup fees as I'm an existing client.
I plan to test this out in the next 3 or 4 months when I've cleared a couple of short term debts and have a few months of invoices for my current contract.
Hopefully your FA is good at other things, because his mortgage advice isn't going to get him (or you) very far.....I spoke to my financial advisor, and his view is that it won't be a problem to get a standard mortgage with someone like the Halifax. Now, I've already spent an hour on the phone with them, as that's who my existing mortgage is with, and they were pretty rigid - no chance of interest only, and I needed to prove my income via tax returns. According to my financial advisor, they have a different type / level of access to the Halifax - and going through him they will assess my income based on invoice payments and basically take his word for it that I have the vehicles in place to re-pay the loan at the end of the term. He'll also waive any setup fees as I'm an existing client.
I plan to test this out in the next 3 or 4 months when I've cleared a couple of short term debts and have a few months of invoices for my current contract.
Halifax do not lend against invoices.
And they don't just take a Broker's word for anything.
I've been thinking about this too. Well, not RIO just yet but remortgage from regular repayment to regular IO. I see that some lenders (eg Coventry) are offering IO using 'downsizing of mortgaged property' as the repayment vehicle, subject to max 50% LTV + min £300k equity + affordability as if it were a repayment mortgage.
At 53 I would rather be paying the repayment equivalent into my pension. I'm employed full time by an unconnected company which covers the affordability and my wife and I also run a small ltd co drawing sals and divs; I would like to pay as much as poss from this into our pensions.
Sarnie, can you get these sorts of deal at reasonable rates? (2% fix 5 years ish?) Our 5yr repayment fix with Virgin that you arranged for us ends next year. Are more of this sort of products emerging?
Cheers
At 53 I would rather be paying the repayment equivalent into my pension. I'm employed full time by an unconnected company which covers the affordability and my wife and I also run a small ltd co drawing sals and divs; I would like to pay as much as poss from this into our pensions.
Sarnie, can you get these sorts of deal at reasonable rates? (2% fix 5 years ish?) Our 5yr repayment fix with Virgin that you arranged for us ends next year. Are more of this sort of products emerging?
Cheers
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