An unencumbered loan is a kind of mortgage you get on a property you own completely. It could be that you’ve paid off the existing mortgage in full, bought the house in cash, or you’ve inherited an uninvolved mortgage-free home.
If your home is no longer subject to any outstanding debts or charges for it, then it’s not encumbered. If you want to refinance and then let some capital to fund home improvements or other purposes the fact that you’re not encumbered will put you in a great position. However, you’ll need to meet the lender’s requirements for a new loan, though.
This article we’ll explain everything you must know about uncontracted mortgages, including how you can get one, and how to determine whether it’s the best option for you.
What exactly is an unsuspecting loan?
When it comes to mortgages “unencumbered” is a reference to mortgage-free home. If you own a property that is unencumbered you hold 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 restricted or burdened. Furthermore “unencumbered” means that it’s unaffected of restrictions. In relation to real estate, “unencumbered” means that it’s not a burden on debt or other financial obligations.
If you’re considering taking out an unencumbered loan this is a mortgage you’d get for a home that doesn’t have a mortgage due.
A mortgage that is unencumbered lets you take a portion of the property’s equity to cash through borrowing against the worth of your home. You can use that money to pay for repairs to your home or to pay off the debt, or to make the deposit for a new property, such as a holiday home and buy-to let investment.
What do I need to know about qualifying for an unincumbered mortgage?
The process of applying for a mortgage on an asset you own for yourself 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 credit score, debt history, and the loan-to-value (LTV) to determine if that you’ll be able to pay back the loan.
A word on LTV. LTV is the amount of the mortgage in relation to the value of your property. If your home can be valued at £200k and you plan to take out £150k and you want to borrow £150k, the LTV is 75 percent. In general the less the LTV will be, the lower your interest rate and also the more selection of mortgage options available to your mortgage.
Your lender will also take your employment and age into consideration when you make an application for a non-encumbered mortgage. For example, if you’re approaching your retirement date (or are already retiring) certain lenders may be reluctant to offer you an extended-term mortgage. In this case you could be able to benefit from a shorter-term mortgage that is repaid for five, 10 or fifteen years, instead of the 30- or 35-year period.
Similar to when you first applied for an mortgage, you’ll have to gather up-to-date financial and personal data – income proof as well as documents related to outstanding loans, as well as any other documents that could help demonstrate that you’re able to pay the monthly installments.
Unencumbered mortgage lenders: Is it the same as it’s a refinancing?
Unoccupied homeowners are generally in a good position when it comes down to refinancing.
Are you really refinancing? In essence, a remortgage replaces a mortgage agreement with a brand new one. Since your home doesn’t have any mortgage, you’re not technically remortgaging the property when you get an unencumbered loan.
Some lenders declare it to be an unencumbered mortgage however, others will treat it as a fresh home purchase. Do not let this confusion confuse you. You’ll still have plenty deals to choose from , and it’s mostly identical, no matter what the lender decides to label it.
Is an unencumbered home loan right for me? Three things to take into consideration
If you have a mortgage-free home, then you’re likely in a good financial situation. This means you don’t have to pay the monthly mortgage payments (usually the biggest monthly expense for the majority of people). This also means that you’ve got an asset you could utilize as a security against which to borrow.
Thus it is possible to take out a loan on your home that is unoccupied to make cash available and finance your own projects or investments in property is a good idea however it will depend on your personal 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 huge monthly cost, with charges and interest added to make it more palatable. Are you able to afford this additional expenditure? Do you think you could be able to afford it even if your circumstances changed?
Is taking out a mortgage seem sensible now? That is what are the reasons you would like to make a loan on your property? What do you plan to do with the cash? Do you think it would be more beneficial to get an individual loan instead in particular if the goal is to complete some home improvement?
A mortgage broker can assist you to identify the short and long-term implications of refinancing and whether it’s a good option for you.
Are you aware of the risks of the situation? The ability to own your home for free is a wonderful location that you can be. When you apply for a mortgage, it could put it in danger. If you don’t pay the loan on time then 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 reasons that have dragged down your credit score are less or are older (a unpaid mobile phone bill that was paid just five years back, for instance) You should have a 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 offers will have extremely high interest rates.
It’s good to know that that there are ways you can make to boost the credit rating of your.