An unencumbered loan is a kind of mortgage you get on a home that you own completely. It could be due to the fact that you’ve paid off your current mortgage completely, purchased your house with cash, or you have inherited an uninvolved mortgage-free home.
If your home does not have any outstanding charges or loans on it, the property is not encumbered. If you’re looking to remortgage and then let some capital to fund home improvements or for other reasons the fact that you’re not encumbered will put you in a great position. However, you’ll need to meet the requirements of your lender to get a new mortgage, however.
This article we will explain everything you must know about uncontracted mortgages, such as how to be eligible for one and the best way to decide whether it’s the best option for you.
What exactly is an unsuspecting loan?
The world of mortgages “unencumbered” is a reference to mortgage-free home. If you own an unencumbered home you are the owner of all the equity. You’ve paid off your entire mortgage.
What is the origin of this word from? It’s a good question “encumbered” signifies that something is weighed down or restricted. In contrast “unencumbered” means that it’s unaffected from any restrictions. In the case of properties, “unencumbered” means that it’s not a burden on debt or other financial obligations.
If you’re planning to take out an unencumbered loan it’s a loan you’d get on a house that has no mortgage due.
An unencumbered mortgage allows you to let some capital in the home to cash, by taking out a loan against the value of your home. You can use that cash to finance home improvements or repairs, to pay off the debt, or to make an investment for a second property, such as a holiday home as well as a buy-to-let.
How can I be eligible for an unincumbered mortgage?
A mortgage application for the property you own in full is very similar to the other types of mortgage applications. The lender will begin with an assessment of your affordability. This means they’ll examine your credit score, your income as well as your debt and the loan-to-value (LTV) to determine if you’re able to repay the loan.
A note about LTV. LTV is the amount of your mortgage as compared to the value of your home. If your home can be valued at £200k and you plan to take out £150k then the LTV is 75 percent. In general the smaller the LTV will be, the lower your interest rate and also the more the range of options for your mortgage.
The lender will also take your age and work status into consideration when you make an application for a non-encumbered mortgage. If, for instance, you’re approaching the age of retirement (or that you’re retired already) certain lenders may not be able to provide you with a long-term loan. In this scenario it’s possible that you’ll be able to benefit from a shorter-term mortgage that is repaid for five, 10 or fifteen years, instead of an a 30- or 35-year mortgage period.
Similar to your first experience when you took out a mortgage, you’ll have to gather up-to-date financial and personal data – evidence of your earnings as well as documents related to outstanding loans, as well as any other documents that could help show that you are able to afford the monthly payment.
Unencumbered mortgage lenders: Is it the same as an Remortgage?
Unoccupied homeowners are generally in a better situation when it comes to refinancing.
Are you really doing a remortgage? Remortgaging, strictly speaking, is a replacement of a mortgage with a brand new one. Since your home isn’t backed by any mortgage, you’re not technically remortgaging the property when you make an unencumbered loan.
Some lenders declare it to be an unencumbered mortgage however, others will treat it as a fresh home purchase. Don’t be confused by this. There are plenty of deals to choose from , and the process will be largely identical, no matter what the lender decides to refer to it as.
Is an unencumbered home loan right for me? Three factors to think about
If you have a mortgage-free property, it’s likely that you’re in a great financial situation. It’s because you don’t have to pay each month mortgage installments (usually the most expensive monthly expenditure for the majority of people). Also, it means that you have an asset you can utilize as a security against which to borrow.
Thus you could consider taking out a mortgage on your property that is not occupied to earn cash and finance home improvement projects or investment properties might be a wise choice however it will depend on the circumstances.
When you are deciding whether to make an application for a mortgage that is unencumbered consider these things:
What is the security of your financial position at present? The prospect of taking on a mortgage will mean a massive monthly cost, and the cost of interest and fees to add some spice. Do you have the financial capacity to pay for the additional expense? Can you pay for it if your financial situation changed?
Do mortgages be a good idea at this point? That is what are the reasons you would like to take out a loan against your home? What do you plan to do with the cash? Do you think it would be more beneficial to apply for an individual loan instead in particular if the goal is to complete some home improvement?
A mortgage professional can help you identify the short and long-term implications of refinancing and if it is a good idea for you.
Are you aware of the risks that comes with it? The ability to own your home for free is a great situation that you can be. When you apply for a mortgage, it can put your home in danger. If you don’t make the payments on time and you fail to pay them, you might lose your home completely.
Can I refinance my unencumbered home if I have poor credit?
Similar to applying for a conventional mortgage or remortgage to obtain an unencumbered loan with bad credit might create a few complexities. But, it’s not difficult.
If the factors that are affecting your credit score are less or are older (a late mobile phone bill that was paid 5 years ago as an example) You should have a decent possibility of getting approved.
On the other hand serious credit problems such as repossession, bankruptcy, or County Court Judgements (CCJs) are likely to limit your choices of lenders and mortgage deal will be accompanied by high interest rates.
There’s good news that there are steps you can take to boost your score on credit.