An unencumbered loan is a mortgage you take out on actual property. This could happen because you have paid off your existing loan in full, purchase your home with cash, or your heirloom property is free from a mortgage.
It’s unencumbered if there are no outstanding loans or charges on your property. You are in a strong position if you wish to remortgage and release some equity for improvements or other purposes. To get a new mortgage, you’ll need to satisfy the criteria of your lender.
We will cover everything you need to know regarding unencumbered mortgages. This includes how to get one, how to make a decision about whether it’s right for you, and how to qualify.
What is an “unencumbered” mortgage?
Unencumbered, in the world of mortgages, refers to a property without a mortgage. You own 100% of an equity-free property if it is unencumbered. You have paid off your entire mortgage.
From where did this word originate? “Encumbered” refers to something restricted or burdened. It’s also known as “unencumbered”, which means it is free from restrictions. In property terms, “unencumbered”, means it is free from financial debts and other financial liabilities.
An unencumbered mortgage is a mortgage that you would take out on a property without any mortgage. And an unencumbered remortgage is a mortgage that was taken out on loan.
You can release some equity in your home through an unencumbered loan against the property’s worth. This money can be used for home repairs, improvements, debt repayments, as well as to deposit in a second, holiday, or buy-to-let investment.
How can I get an unencumbered home loan?
It is easy to apply for a mortgage on an existing property. An affordability assessment is performed by your lender. The lender will perform an affordability assessment. This involves checking your income, credit history, and loan-to-value (LTV), to ensure that you can repay the loan.
LTV stands for the mortgage’s size concerning your property’s worth. LTV generally indicates that the lower your interest rate, the more options you have for mortgages.
When you apply for an unencumbered home mortgage, your lender will also take into consideration your age and work history. Lenders may be reluctant to grant you a long-term mortgage if your retirement age is approaching or you are already retired. This situation might make it more advantageous to have a short-term mortgage, which can be paid back over five, ten, and fifteen years, as opposed to a 30-year or 35-year mortgage term.
Similar to the first mortgage you received, you will also need to collect up-to-date financial and personal information. These include proof of earnings, documents relating to outstanding loans, or any other evidence that may help prove you can afford the monthly payment.
A quick refresher on everything you need to make a mortgage application
Unencumbered lenders of mortgages: Is it a new mortgage, or a remortgage
When it comes to remortgaging, homeowners that aren’t in debt tend to be in a better position.
But is remortgaging actually? To put it simply, a mortgage remortgage will replace an existing mortgage agreement with a new one. Your property does not have a mortgage so you aren’t technically refinancing it.
Some lenders will still call it an Unencumbered Remortgage. Others treat it like a brand-new property purchase. This shouldn’t be confusing. There are still many deals you can choose from, and the process is the same regardless of what title your lender gives it.
Is an unstressed mortgage right for me or not? There are three things you should consider
A mortgage-free home is a sign that you are financially stable. This means you aren’t paying your monthly mortgage repayments, which is often the biggest monthly expenditure for most people. You also have an asset to use as security for borrowing.
It could be smart to take out a mortgage on an unencumbered house to make cash or fund property investments. But it all depends upon your financial situation.