Lifetime Mortgages vs RIO Mortgages – What Over-55s Need to Know

Home Equity Release Mortgages Explained

If you’re over 55 and property-rich but cash-poor, equity release could be an option worth understanding. In the UK, the most common type is a lifetime mortgage.

In this Money Tip’s interview, Equity Release Mortgage expert Darren Cohen, explains that a lifetime mortgage allows you to borrow money secured against your home while retaining ownership. Unlike a traditional mortgage, you don’t have to make monthly repayments unless you choose to. Instead, the interest typically “rolls up” and is added to the loan. The balance is repaid when you die or move into long-term care, usually from the sale of the property.

There are several types or variations of lifetime mortgages:

1. Roll-up Lifetime Mortgage – The most common option. No monthly payments are required; interest compounds over time, which can significantly increase the mortgage debt.

2. Interest-Paying Lifetime Mortgage – You pay some or all of the monthly interest to reduce the final balance. Early repayment penalties typically apply during the first seven years.

3. Drawdown Lifetime Mortgage – You release funds in stages, meaning you only pay interest on the money actually withdrawn.

Another option is a Retirement Interest-Only (RIO) mortgage. With a RIO, you pay the interest each month, but the capital is repaid when the property is sold after death or entry into care. Because you’re servicing the interest, the debt does not grow. However, you must prove affordability, unlike most lifetime mortgages.

There are a small number of lenders who will grant a fixed term Interest Only mortgage, subject to affordability. With an Interest Only mortgage or a RIO, your home may be repossessed if you do not keep up repayments.

Equity release can provide tax-free cash for supplementing retirement income, home improvements, or helping family. But it will reduce the value of your estate and may affect means-tested benefits.

Always seek independent financial advice and choose lenders approved by the Equity Release Council, which offers protections such as the “no negative equity guarantee.”

Used wisely, equity release can be a powerful retirement and inheritance tax planning tool — but it must be understood properly first.

If you are interested in exploring Equity Release, contact Darren Cohen at Right Homes Equity Release Ltd (www.linkedin.com/in/darrenscohen) or email charles@charleskelly.net.

 

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