Not every equity release enquiry ends with equity release. Before we recommend a lifetime mortgage, we compare it against the other later life options, and sometimes one of those is the better fit.

This case study is one of those. Equity release was considered as a way to repay Monica's interest-only mortgage. She completed on a retirement interest-only mortgage, known as a RIO, arranged by our adviser Neil Massam.

Meet The Client 👩

Monica (73), from Altrincham, is single and retired. She owns a home worth around £345,000, with an interest-only mortgage of £187,000 secured on it. She had no other debts.

Monica receives a pension from her former employer's scheme.

The Challenge She Faced 🏡

Monica's interest-only mortgage had eight months left to run. At the end of the term, the full £187,000 would be due for repayment.

She wanted to stay in her home indefinitely. That meant replacing the mortgage with borrowing that would not reach another end date a few years later.

Two other points shaped the advice. Monica had the pension income to pay the interest each month and wanted to carry on doing so. She also expected to receive a lump sum within the next few years and wanted the option of using it to reduce the balance.

How We Helped 💡

Neil compared three ways of repaying the mortgage.

A lifetime mortgage. This is the most common form of equity release, and the amount available depends on age and property value. At 73, the most Monica could have released was around £148,000. That was £39,000 less than she needed.

Neil also looked at lifetime mortgages where the interest is paid each month. The rates were higher than on a RIO, and the early repayment charges ran for longer than Monica wanted with a lump sum expected.

A standard remortgage. The monthly payments were too high and did not pass the affordability rules that apply to standard mortgages. A standard mortgage would also have left Monica with another fixed term that could end while she was still living in the house.

A retirement interest-only mortgage. A RIO works like a standard interest-only mortgage, with one difference: there is no end date. The interest is paid each month, so the amount owed does not grow. The loan is repaid when the home is sold, or when the borrower dies or moves into long-term care.

Neil recommended a RIO for the full £187,000, which is 54% of the value of Monica's home. The lender was satisfied that the payments were affordable on her employer's pension alone.

Because Monica had the income to pay the interest and wanted to keep paying it, the RIO was also the cheaper option when compared with a lifetime mortgage.

The Outcome 📝

The RIO completed nine weeks after Monica's first enquiry, well inside the eight months left on her old mortgage. The £187,000 interest-only mortgage was repaid in full.

Monica stays in her home with monthly payments she can manage and no date by which the loan has to be repaid.

The early repayment charges on her RIO run for five years. After that, she can repay a large lump sum without a charge if she chooses to. The mortgage does not depend on that money arriving. It has no end date, and the payments are covered by her pension.

Why Advice Matters 🤝

Equity release was the wrong fit for Monica on two counts. It could not raise enough to repay her mortgage, and it cost more than paying the interest each month on a RIO.

A RIO is not right for everyone either. The payments have to be made every month for as long as the loan runs, the lender has to be satisfied they are affordable in retirement, and the home is at risk if they are not kept up. A lifetime mortgage has no required monthly payments, but any unpaid interest is added to the loan and compounds, so the balance grows.

As a whole-of-market broker, we compare lifetime mortgages, RIOs and standard mortgages side by side before recommending any of them. You can read how the options compare on our later life planning page and in our guide to mortgage options for the over 55s.

Equity Release or RIO? Your Questions Answered 🙋

Is a retirement interest-only mortgage a type of equity release?

No. A RIO is a residential mortgage. You pay the interest every month and the amount you owe does not grow. Equity release usually means a lifetime mortgage, where monthly payments are optional and any unpaid interest is added to the loan.

Can I borrow more with a RIO than with a lifetime mortgage?

It depends on your age, income and property. The maximum on a lifetime mortgage is set mainly by your age and the value of your home. A RIO is based on what the lender is satisfied you can afford from your retirement income, up to its own loan-to-value limit. In Monica's case, a lifetime mortgage stopped at around £148,000 and the RIO provided £187,000.

When does a RIO have to be repaid?

There is no fixed end date. The loan is repaid when the property is sold, or when you die or move into long-term care. On a joint RIO, that applies to the last remaining borrower, and lenders check that the survivor could afford the payments alone.

What happens if I cannot keep up the payments on a RIO?

A RIO is secured on your home, so the home is at risk if the payments are not kept up. That is the main difference in risk from a lifetime mortgage, which has no required monthly payments. It is why lenders test the payments against your retirement income before they lend.

Compare Your Later Life Options

We compare equity release, RIOs and standard mortgages side by side and tell you which fits. Get in touch to arrange a conversation with one of our advisers, or read more of our equity release case studies.