What is an Unencumbered Mortgage?
I Own my House Outright Can I Remortgage? An unencumbered mortgage is a term that refers to the remortgaging of a property that is owned outright. The owners of this property may have been cash buyers, paid off their previous property loan, or inherited the house without a mortgage. The key takeaway to understanding an unencumbered mortgage is that there are no financial products tied to the ownership of the property. Owners of an unencumbered property own 100% of their home and are likely to be remortgaging to access funds that are relative to the value of the property.
Without context, the word “unencumbered” indicates a lack of restriction or burden. For properties with no mortgage, owners are free from the financial burden of repaying their loan. With this freedom, unencumbered property owners are entitled to increased borrowing power. This is because owners can release equity in their property by securing a loan against the value of their home. Across this article, we’ll discuss how and why property owners may choose to release funds from their property in this way.
How Does an Unencumbered Mortgage Work?
To remortgage an unencumbered property, property owners must identify a lender to provide a remortgage product for their property. As unencumbered owners, your borrowing power is increased. However, there are still strict lending criteria enforced by the majority of lenders. To access their financial products, you must provide evidence that you consistently meet their criteria and prove that you can repay the loan.
Much like an application for any typical residential mortgage loan, there are plenty of details requested by the lender. A valuation of the property will be required to assess the loan-to-value (LTV) rate of the property. Applying for a mortgage on a debt-free property typically provides access to an average LTV of around 80-90%, depending on the lender.
If you are interested in releasing higher LTV rates from your property, you may find it helpful to speak to a specialist mortgage broker. Professional brokers such as Eden Hawk can assist you in locating lenders who offer higher maximum LTV products.
What do Lenders Check for?
When applying for a mortgage on a property that you own outright, it is essential to follow the same process of comparing lenders for the right deal for you and your property. This is because some lenders will offer better mortgage deals than others. Depending on your personal circumstances.
Much like a typical mortgage application, lenders with different affordability criteria will request a range of documentation and evidence. This is to prove that you can afford timely mortgage repayments each month.
An investigation into your credit history, income vs outgoings, stability of income and current debt levels will all be taken into account during the assessment. If you are able to afford the mortgage repayments, the lender will offer you a deal.
Reasons to Remortgage a Property that is Owned Outright
There are many reasons why somebody would want to remortgage their unencumbered property. Here are some of the most common reasons:
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Making an Expensive Purchase
There are a few large financial purchases that you may want or need to make in your lifetime. Buying a new car, taking a gap year or going on an expensive holiday are all examples of when people may look to remortgage their property in order to free up some extra cash.
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Making Home Improvements
If your unencumbered property is in need of some love, you may want to consider remortgaging in order to free up some extra cash for much-needed home improvements.
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Consolidating Debt
If you have a few different debts that you are struggling to keep on top of, consolidating these debts into one monthly repayment could be a good way to manage your money more effectively. Debt refinancing involves taking out one loan, in this case by remortgaging, to pay off several other loans.
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Purchasing a Second Property or Holiday Home
If you are looking to buy a second property or holiday home, you may want to consider remortgaging your unencumbered property. In order to release some extra cash that can be put towards the purchase. By releasing the funds from your existing property, you may not need to take out as large of a mortgage on the new property. Which could save you money in the long run.
Think carefully before securing your debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
How Much Can I Borrow?
The amount you can borrow will depend on several different factors, including your income, current debts, credit history and the value of your property.
Your mortgage lender will likely request a valuation survey to be completed on the property. This is to provide an accurate representation of its current value. Based on the results of this survey, most lenders will offer a maximum of a 90% LTV mortgage product. This means for every £100,000 invested in your home, you could receive £90,000 as a loan.
Individual circumstances and financial situations will determine the exact amount you can borrow. Different lenders will have different LTV caps. It is essential to do your research and compare different lenders to find the best deal for you.
Is it Different from Equity Release?
Equity release is a way of accessing the money tied up in your home without having to sell it. There are two main types of equity release – lifetime mortgages and home reversion schemes.
A lifetime mortgage enables property owners to secure a loan against the value of their home. This loan is repaid from their estate in the event of their death or sale of the property.
Alternatively, home reversion schemes involve selling a percentage of the property to a provider in exchange for a lump sum or regular payments to the value that was sold. The original owner of the property can remain living in the property. But the provider will now own a portion of the home.
The core difference between an equity release and a remortgage is that the remortgage is repaid. The investment remains within the property. The loan is simply secured against its value. In contrast to this, equity release consumes the funds that are invested in the property. As they are either sold or used to fund a lifestyle. The right decision for you will consider your current lifestyle and financial needs. If you require any further information, contact Eden Hawk Financial Solutions.
Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits.
Final Thoughts
Any property owner who owns their house outright could be eligible to remortgage the property. Lenders will consider the value of your home and the likelihood of the loan being repaid. This will influence whether or not you can secure a loan on the property. As well as the amount you are eligible to borrow.
For further queries in regard to eligibility or advice surrounding remortgaging an unencumbered property, contact Eden Hawk Financial Solutions today. Our expert advisors can talk you through the options when accessing funds that are secured against a property. We can search the market for the right remortgage deal and assist you throughout the application.
