What happens to my RIO mortgage if I go into care?

A Retirement Interest Only (RIO) mortgage is designed to last until a specific life event occurs, allowing homeowners aged 55 or over to manage their property finances without a definitive end date, provided monthly interest payments are kept up. If you permanently move into residential long-term care, this typically constitutes a ‘trigger event’ in the eyes of the lender, initiating the formal requirement to repay the original loan capital, usually through the sale of the property.

What Happens to My RIO Mortgage If I Go into Care? A UK Guide

For many older homeowners in the UK, a Retirement Interest Only (RIO) mortgage offers a way to manage affordability in retirement, requiring only the monthly interest to be paid while the capital is repaid later. However, these mortgages are heavily dependent on the borrower maintaining the property as their primary residence. When a borrower needs to move permanently into long-term residential care, this structure faces immediate change.

Understanding the implications and necessary steps is crucial for both the borrower and their family or representatives, such as those holding a Lasting Power of Attorney (LPA).

Understanding RIO Mortgage Trigger Events

Unlike standard interest-only mortgages that require repayment by a fixed date, RIO mortgages are conditional loans. The loan capital only becomes due upon the occurrence of a specific, agreed-upon ‘trigger event’. These events are legally defined in your mortgage contract.

Typical trigger events include:

• The death of the last surviving borrower.
• The last surviving borrower selling the property.
• The last surviving borrower moving out of the property permanently.

Moving into long-term residential care falls under the third category. If the move is permanent, you are no longer residing in the mortgaged property as your main home, which immediately activates the contractual repayment clause.

The Distinction Between Temporary and Permanent Care

It is vital to distinguish between short-term or respite care and a permanent move to a residential care facility. If the move is temporary, and there is a reasonable expectation that the borrower will return home, the lender may agree to defer the trigger event. However, this must be communicated clearly and agreed upon with the mortgage provider.

If the move is definitively permanent, the clock starts ticking for repayment.

The Immediate Steps After Moving into Care

Once the decision has been made that the move to care is permanent, specific actions must be taken promptly to ensure compliance with the RIO terms and prevent the lender from taking legal steps.

1. Informing Your Lender

The first crucial step is to formally notify your RIO mortgage provider that the borrower has moved into permanent care. While this activates the repayment requirement, failing to notify them can lead to breaches of contract and unnecessary stress. Communication should ideally be handled by a designated relative or the person holding the LPA for property and financial affairs.

2. Contractual Repayment Period

Lenders recognise that selling a property takes time. RIO contracts typically stipulate a defined period within which the property must be sold and the loan repaid, often ranging from 6 to 12 months from the trigger date. During this period, the interest payments usually must continue to be met until the sale completes.

If the property is not sold within this timeframe, the lender may start legal proceedings to enforce the sale, which could result in increased fees and eventual repossession.

3. Managing the Sale Process

The property sale process will need to commence quickly. This involves instructing estate agents, solicitors, and managing viewings. If the borrower is unable to manage this process themselves due to incapacity, the role of a Power of Attorney (POA) becomes central.

• Power of Attorney: A registered LPA for property and financial affairs allows the appointed attorney(s) to manage the sale, sign documents, and deal with the mortgage provider on the borrower’s behalf. Without an LPA, the process may require an application to the Court of Protection, which can be time-consuming and costly.
• Compliance Warning: It is crucial that the POA acts strictly in the best financial interests of the borrower.

If the required interest repayments are not maintained during the sale period, or if the sale process stalls, your property may be at risk if repayments are not made. Failure to meet contractual obligations can lead to legal action, increased interest rates, additional charges, and ultimately, repossession by the lender.

Financial Implications and Care Funding

Moving into care often intersects with local authority financial assessments, which determine whether the resident is eligible for state funding to cover care costs.

The Role of Local Authority Assessments

In England, if an individual’s capital (including the value of their property, minus any debts secured against it) exceeds the upper capital limit (currently £23,250, though subject to change), they are typically deemed self-funding. The RIO mortgage debt reduces the net equity value of the property, affecting the overall financial assessment.

However, the local authority usually expects that accessible capital is used to fund care. If the home is unoccupied because the borrower is in care, the property’s net value is usually taken into account for the financial assessment (after an initial 12-week disregard period).

For detailed, independent advice on funding care costs and financial assessments, it is recommended to consult resources like MoneyHelper (formerly the Money Advice Service).

The Proceeds of Sale

Once the property is sold, the proceeds are distributed in the following general order:

1. Settlement of all outstanding solicitor fees, estate agent commission, and sale costs.
2. Repayment of the full RIO mortgage capital, plus any accrued interest up to the completion date.
3. The remaining surplus funds belong to the borrower and will then be used to pay for their ongoing care fees until those funds fall below the local authority threshold.

Potential Difficulties and Solutions

While the process is contractually defined, complications can arise, especially regarding timescales and legal authority.

Delays in Sale

If the property market is slow or there are difficulties with the conveyancing process, the sale may exceed the lender’s deadline (e.g., 12 months). In this situation, the POA or representative must maintain proactive communication with the lender, providing regular updates on the sale’s progress. Lenders may grant extensions if they are satisfied that reasonable efforts are being made to sell the home.

Maintaining Interest Payments

Even after moving into care, the monthly interest payments must continue until the mortgage capital is repaid. If the borrower’s existing income (pension, etc.) is diverted entirely to care fees, ensuring these interest payments are met can be challenging. Funds may need to be drawn from other savings or investments to prevent the RIO mortgage from defaulting during the sale period.

Managing the Property

While the property is vacant awaiting sale, it remains the borrower’s responsibility. Insurance cover must be maintained, and the property must be secured and looked after, adding to the ongoing costs that need to be managed by the POA or family.

People also asked

Can I rent out my home instead of selling it to repay the RIO?

Generally, no. RIO mortgages require the property to be the borrower’s primary residence. Letting the property would typically breach the terms of the RIO contract, as the primary requirement is that the borrower or joint borrowers live there. Any rental income would also likely affect the local authority financial assessment.

Does a RIO mortgage restrict my choice of care home?

The RIO mortgage itself does not restrict your choice of care home, but the financial implications do. If the local authority determines you must sell the property to fund your care, your available capital will dictate how long you can afford a private facility before potentially needing to move to a less expensive, local authority-funded option.

Is a RIO mortgage the same as Equity Release?

No, they are different products regulated differently by the Financial Conduct Authority (FCA). A RIO mortgage requires you to pay the interest monthly and the capital when a trigger event occurs. Equity release (specifically, a Lifetime Mortgage) allows the interest to roll up and compound until the trigger event, meaning no monthly payments are usually required, but the debt grows significantly over time.

What happens if the property sells for less than the outstanding RIO debt?

The RIO mortgage is a standard regulated mortgage, meaning that if the sale proceeds are insufficient to cover the debt, the borrower (or their estate) remains liable for the shortfall. This risk is a key difference between RIOs and many Equity Release schemes, which often include a “No Negative Equity Guarantee.”

What if my partner is still living in the property?

If the RIO mortgage was taken out jointly, the loan capital usually only becomes repayable upon the death or permanent move into care of the last surviving borrower. If one partner moves into care but the other remains living in the property and continues to meet the interest payments, the trigger event is usually deferred until the remaining partner dies or moves out permanently.

Conclusion

If a permanent move into residential care becomes necessary, it represents a definitive end point for a Retirement Interest Only mortgage. While this transition can be emotionally and administratively challenging, understanding the contractual requirements—primarily the need to notify the lender and initiate the property sale within the agreed timeframe—is essential to ensuring compliance and securing the maximum remaining equity for the future funding of care fees. Early communication with the lender, backed by robust legal support (such as a registered LPA), streamlines the process and helps mitigate the risk of default or enforced sale.