Should You Choose Lifetime or RIO Mortgages?


This year, older homeowners can choose another type of home finance product – retirement interest-only or RIO mortgages. These deals allow borrowers to pay a monthly mortgage interest until they sell their house, go into long-term care or pass away. At this point, the loan is then repaid by selling the property.

These products were relatively uncommon up until March of this year, however their popularity has increased. People who choose to research RIO mortgages will find that they are rather similar to lifetime mortgages. As a result, it can be difficult for borrowers to choose what is right for them. Overall, retirement products can appear to be daunting and confusing, therefore defining both types of mortgages can be helpful.

What are Lifetime Mortgages?

Lifetime mortgages are also known as equity release mortgages. These loans are secured against your house that allow you to release some of the equity you have built up. They are available to people aged 55 and over. The loan is fully paid off when the last person living in the property sells the home, goes into full-time care or passes away.

What are RIO Mortgages?

RIO mortgages are very similar to interest-only mortgages, that allow borrowers to pay just the interest on the loan each month. However, the “retirement” aspect means that the mortgage has no set end date. Much like a lifetime mortgage, the loan is redeemed when you sell the property, go into full-time care or pass away. However, there is no minimum or maximum age limit.

RIO mortgages require borrowers to pass affordability checks and commit to making regular payments for life. They are also sold by mortgage brokers, compared to lifetime mortgages that are sold by specialist equity release advisers.

Are RIO Mortgages the Future?

The Financial Conduct Authority (FCA) believes that RIO mortgages could potentially solve the problem of more interest-only borrowers with no way of repaying the capital of their mortgage. However, there are a limited number of lenders who sell this product. These currently include: Post Office Bank, Hodge Bank and Vernon Building Society. Nationwide plans to launch RIO deals in the future.

To know what is right for you and your specific circumstances, it is best to consult with an independent financial adviser who can advise you according to your individual needs.

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