Can I get a RIO mortgage if I still have an existing mortgage?

A Retirement Interest Only (RIO) mortgage is a specific type of residential loan designed for older homeowners, typically aged 55 or over, allowing them to release equity or remortgage without having to pay back the capital until a defined life event occurs (such as the homeowner’s death or permanent move into long-term care). If you currently hold an existing mortgage, obtaining a RIO mortgage is usually achieved by using the new RIO funds to repay and replace the current debt, a process known as remortgaging. The primary challenge lies not in having the existing debt, but in meeting the RIO lender’s strict affordability criteria to ensure you can comfortably cover the interest payments for the rest of your life.

Understanding if you can get a RIO mortgage if you still have an existing mortgage

The existence of a prior mortgage is a standard situation when applying for any new mortgage product, including a Retirement Interest Only (RIO) mortgage. In almost all cases, the primary purpose of taking out the new RIO mortgage will be to refinance the existing debt. This process clears the previous mortgage and secures the RIO loan against the property.

Unlike standard residential mortgages, RIO mortgages are designed to be long-term solutions that extend well into retirement. Because of this longevity, lenders impose rigorous checks to confirm that the applicant’s income (pensions, investments, rental income, etc.) is sufficient to cover the interest payments for an indefinite period.

The transition from a standard mortgage to a RIO involves three key steps:

1. Applying for the RIO mortgage based on your property value and required loan amount (which must cover the existing mortgage).
2. Undergoing comprehensive affordability assessments (stress testing your retirement income).
3. Completing the legal process, where the new RIO loan is executed simultaneously with the repayment of the old mortgage.

What is a Retirement Interest Only (RIO) Mortgage?

A RIO mortgage is a specialist type of secured loan available in the UK, aimed at older borrowers, typically those aged 55 and above. It is distinct from lifetime mortgages (equity release) and standard interest-only mortgages:

• Interest Payments are Mandatory: With a RIO, you must make monthly payments covering the interest accrued on the loan amount. Unlike equity release, where interest can be rolled up, failure to pay interest on a RIO mortgage constitutes a default.
• Capital Repayment Event: The loan principal (the original amount borrowed) is not repaid until a specific life event occurs. This is usually when the last borrower dies or permanently moves into residential care. At this point, the property is typically sold, and the sale proceeds are used to repay the debt.
• Affordability Focused: RIO lenders prioritise demonstrating a sustainable, reliable retirement income. This is critical because the repayment term could potentially last 20, 30, or even 40 years.

If you have an existing mortgage, moving to a RIO can often reduce monthly expenditure compared to a capital repayment mortgage, as you are only servicing the interest. However, it is vital to remember that the principal debt remains unchanged.

The Refinancing Process: Clearing Your Existing Debt

When you apply for a RIO mortgage, the total loan amount requested must be sufficient to clear the balance of your current mortgage and potentially any associated early repayment charges (ERCs) from the existing lender.

Step 1: Calculate the Required Loan Amount

You must establish the exact redemption figure of your current mortgage. This includes the remaining principal, any interest due up to the completion date, and any ERCs if you are exiting the previous product before the end of the fixed or introductory term. The RIO loan must cover 100% of this figure.

Step 2: Affordability Assessment

Lenders need proof that your retirement income is adequate to meet the interest payments for the mortgage term, which is effectively for the remainder of your life. This assessment is rigorous and might involve stress-testing your income against potentially higher future interest rates. Sources of income typically considered include:

• State pension and private pensions.
• Investment income or dividends.
• Rental income from buy-to-let properties.

If you apply as a joint borrower (e.g., with a spouse or partner), the affordability calculation must often demonstrate that the surviving borrower could still manage the payments if the higher earner were to pass away first.

Step 3: Property Valuation and Legal Completion

The lender will instruct a valuation of your property to ensure it provides sufficient security for the loan. The loan-to-value (LTV) limits for RIO mortgages tend to be lower than for standard mortgages, often requiring substantial equity in the property (typically 40% LTV or less, though this varies by lender).

During completion, solicitors handle the legal transfer, ensuring that the existing mortgage charge is removed from the Land Registry simultaneously as the new RIO charge is registered. This ensures there is no period where two mortgages are secured against the property, although funds are briefly handled for repayment.

Eligibility Criteria When Moving to a RIO

Successful applicants who wish to replace an existing mortgage with a RIO must meet several key criteria:

Age Requirements

You must generally be aged 55 or older. Some lenders have an upper age limit for application, while others focus purely on the age of the borrower at the point of the final repayment event.

Equity and Loan-to-Value (LTV)

A significant amount of equity in the property is usually required. If your existing mortgage represents a high proportion of the property value, it may be difficult to find a RIO lender willing to offer the required amount.

Credit History

Your credit profile will be reviewed as part of the application process. While a RIO mortgage might be accessible even if you have minor historical credit issues, serious defaults or insolvency history could impact your eligibility. Lenders need confidence that you have a track record of meeting your financial commitments.

Lenders will assess your credit history as part of the application process, so it is helpful to know your standing before applying. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)

Long-Term Planning

As RIO mortgages are designed to run indefinitely, lenders often require evidence of independent legal advice and sometimes financial advice to ensure all applicants fully understand the commitment and the future implications for their estate.

The Risks Associated with RIO Mortgages

While RIO mortgages can provide financial stability in retirement, particularly if you are seeking to replace an existing mortgage that is coming to an end, they are secured loans and carry specific risks that must be considered:

Affordability Default Risk: If your retirement income decreases or interest rates rise significantly, you may struggle to meet the monthly interest payments. Failure to pay the interest constitutes a default, and the lender may take action to recover the debt.

Property May Be At Risk: Since the RIO mortgage is secured against your home, failure to maintain the mandatory interest repayments could lead to severe consequences. Your property may be at risk if repayments are not made. Consequences could include legal action, increased interest rates, additional charges, and ultimately, repossession.

Inheritance Reduction: Because the capital debt is repaid from the sale of the property, the amount of equity remaining in the estate for beneficiaries will be reduced by the principal loan amount, plus any fees or outstanding interest upon sale.

It is highly recommended that you seek impartial, regulated financial advice before committing to a RIO product. Resources like the government-backed MoneyHelper service can provide useful starting points for guidance on retirement planning and mortgages for older borrowers: MoneyHelper – Mortgages for Older People.

People also asked

Can I take additional cash out when I remortgage to a RIO?

Yes, if the purpose of the RIO mortgage is to replace an existing loan, you can often borrow a higher amount than your existing mortgage balance, provided you meet the lender’s required Loan-to-Value (LTV) limits and can demonstrate the affordability for the interest payments on the full, higher loan amount. The maximum LTV for RIOs is typically conservative.

What happens if the property value drops below the loan amount?

Unlike some equity release products (which offer a ‘no negative equity guarantee’), a RIO mortgage requires that the interest payments are maintained. As long as payments are met, the RIO mortgage holder will not typically be forced to sell the property if its value falls. However, RIO mortgages are designed to be repaid by the sale of the property, and the lender relies on sufficient equity to cover the loan when the repayment event occurs.

Are RIO mortgages the same as Equity Release?

No, they are different, although both are targeted at older homeowners. The key difference is the requirement for monthly payments. RIO mortgages require you to pay the interest every month. Equity release (Lifetime Mortgages) allows the interest to roll up and compound, meaning no monthly payments are typically required, but the debt grows significantly over time.

What is the minimum age to apply for a RIO mortgage?

The minimum age required to apply for a Retirement Interest Only mortgage is generally 55 years old across most UK lenders. However, criteria can vary, and some lenders may require applicants to be older, especially if the application involves multiple borrowers.

Transitioning from a standard mortgage product to a Retirement Interest Only mortgage is a significant financial decision that can offer security and flexibility in retirement, especially if you have an existing debt obligation. By consolidating your existing mortgage debt into a RIO product, you secure the loan for the long term, provided you have a robust plan for meeting the ongoing interest payments.

Working with an independent mortgage broker specialising in later-life lending can be crucial. They can help navigate the complex affordability criteria, compare rates across specialist RIO providers, and ensure the chosen product effectively replaces your existing mortgage while fitting your long-term retirement strategy.