The fundamental difference
A RIO mortgage requires you to make monthly interest payments - typically £250-£500/month on a £100,000 loan. Because you are paying the interest, the balance stays constant. When the property is eventually sold, the same £100,000 is repaid.
A lifetime mortgage (equity release) requires no monthly payments. The interest rolls up and compounds. When the property is sold, the balance has grown - to approximately £170,000 after 10 years and £290,000 after 20 years on a £100,000 loan at 5.5% AER.
The estate impact of a RIO is significantly lower than equity release over most time horizons. But RIO requires sustainable monthly income to service the interest payments.
When a RIO is the better choice
A RIO mortgage is typically better when:
- Your income (pension, State Pension, drawdown, annuity) can sustainably service the monthly interest payments
- Preserving estate value for beneficiaries is a priority
- You want to maintain a constant loan balance with no roll-up
- You expect a relatively shorter loan period (in which case equity release interest compounds less)
Lenders: LiveMore Capital, Hodge Bank (up to 75% LTV), Legal & General Home Finance, Nationwide.
When equity release is the better choice
Equity release (lifetime mortgage) is typically better when:
- Income cannot sustainably service monthly interest payments
- The certainty of no mandatory monthly payments is the priority
- You have significant health conditions that may qualify for enhanced terms
- You want access to a drawdown reserve for future costs
- Income may change or become uncertain in future
Key lenders: Aviva, Legal & General, Just, Canada Life, More2Life.
The numbers compared
On a £100,000 loan at age 70:
RIO monthly payment (at 5.8%): approximately £483/month. After 10 years: £100,000 still owed. After 20 years: £100,000 still owed. Total interest paid over 20 years: approximately £115,920.
Lifetime mortgage (no payments, 5.8% AER): After 10 years: approximately £175,000 owed. After 20 years: approximately £307,000 owed. Total cost (if property sold after 20 years): £207,000 additional debt vs original loan.
Conclusion: if you can sustain RIO payments, the RIO typically results in significantly less total debt - but requires commitment to ongoing monthly outgoings.
Which should I choose?
The right choice depends on your specific income, health, property value, and inheritance priorities. There is no universal answer.
Our advice process models both products with your actual numbers - monthly payment at current rates, projected balance at different time horizons, estate impact, and benefit implications. Only with this comparison can a genuinely informed decision be made.
Contact our later life lending team for an independent side-by-side comparison for your circumstances.