Both lifetime mortgages and Retirement Interest Only (RIO) mortgages are designed to help older homeowners access the equity in their homes, but they work differently.

A lifetime mortgage is a type of equity release product that allows homeowners to borrow money against the value of their home, without having to make monthly payments but are allowed to do so if they wish (with some restrictions). If no payments are made the interest on the loan is rolled up and added to the overall debt, which is repaid when the homeowner dies or moves into long-term care. Lifetime mortgages can be attractive to people who want to access the equity in their home but do not want to sell or downsize.

On the other hand, a Retirement Interest Only (RIO) mortgage is a type of mortgage where the borrower only pays the interest each month, and the capital is repaid when the homeowner dies or moves into long-term care. Unlike a lifetime mortgage, the borrower is required to make monthly interest payments, which can be more affordable for those who have a steady income in retirement.

Another key difference between lifetime mortgages and RIO mortgages is the way they are regulated. Lifetime mortgages are regulated by the Financial Conduct Authority (FCA) as an equity release product, whereas RIO mortgages are regulated as standard mortgages. This means that the rules around affordability checks and advice requirements are different.

Generally, to qualify for a RIO borrowers must be over the age of 50. For lifetime mortgages the qualifying age is 55. The amount that can be borrowed using a RIO is entirely dependent on income in retirement. However, the amount available to borrow on a RIO could be considerably more than what is currently available using a lifetime mortgage/equity release product. So, if for example you have a current interest only mortgage that is coming to the end of its term and needs repaid, a RIO mortgage could well be a better choice than a lifetime mortgage.

In summary, while both lifetime mortgages and RIO mortgages can help older homeowners access the equity in their homes, they work differently and have different regulatory requirements. A lifetime mortgage does not require monthly payments (although some payments can be made if the client chooses to do so). If payments are not made interest is rolled up and added to the overall debt. In contrast, a RIO mortgage requires monthly interest payments, and the capital is repaid when the homeowner dies or moves into long-term care. Of course, with any later life lending a client’s individual circumstances combined with their objectives will dictate which product, if any, is suitable.