In this brief guide, we are going to discuss what an unencumbered mortgage is.

There are many homeowners who own their properties outright and have considered if they can get a remortgage. The answer is yes.

These are known as unencumbered mortgages and the risk to the mortgage lender tends to be less due to the fact that you already have sufficient equity in your home.

Unencumbered mortgages arr relatively simple but when securing any finance on your home you may want to consider all f your options to ensure you are making the best choice.

A mortgage broker may help you do this.

What is an unencumbered mortgage?

An unencumbered mortgage or remortgage is a mortgage which is given on an unencumbered home.

An unencumbered property is a property which is mortgage free. You may also hear the term an unencumbered home.

For a property to be unencumbered it must not have any secure loans or mortgages on it.

You may want to get an unencumbered mortgage for a variety of reasons such as:

  • To buy a holiday home
  • To release equity
  • To fund your children’s university fees
  • For home renovation
  • To buy a buy to let property
  • To buy a second home
  • For debt consolidation

Restrictions on unencumbered mortgages

When looking to get an unencumbered mortgage, you should be aware that not all mortgage lenders will allow you to access their standard residential mortgage deals and this could mean that you miss out on any special offers they have such as discounted or waived legal fees.

Should you get an unencumbered mortgage?

Remortgaging a house you own outright is a big deal as you will be placing debt on the house and securing it to that debt. If you fail to meet your monthly repayments you could end up losing your home so it is very important to consider if you need an unencumbered mortgage or remortgage and understand its risks.

Some of the things you may want to consider are:

Are there any better methods of finance

Based on what you want to do there may be better methods of finance such as unsecured loans, credit cards of business loans.

Speaking to a mortgage advisor may help you explore your mortgage options further.

Why you need a mortgage

Some times the reasons we think a mortgage do not make financial sense and the benefits gained from taking a mortgage will be far outweighed by the costs of such a mortgage. 

If you want to take a mortgage to buy a gift then this may not be the most financially responsible thing to do. 

A mortgage lender could help you better analyse your mortgage options and methods of finance based on your needs.

The financial commitment

Taking out an unencumbered mortgage will mean that you now have a new financial commitment which you must be able to afford and be aware to repay every month. 

It is vital that you get to grips with the terms of the new financial commitment and if you feel you will be able to manage.

The mortgage lender will also put you through their mortgage affordability assessment to ensure you can afford to make any monthly mortgage repayments which may be required.

Your financial situation

If you already have a lot of existing debt then taking on an unencumbered mortgage you really out you at financial risk as if things don’t go well you could end up losing your property in a home repossession.

Will you be eligible for an unencumbered mortgage?

Unencumbered mortgage lenders will out you through the same mortgage affordability checks as they will put borrowers who seek a normal mortgage.

This means you must be able to make the monthly mortgage repayments comfortably.  

They will also put you through a mortgage stress test to ensure that you will still be able to make the monthly mortgage repayments if mortgage rates rose on your unencumbered mortgage or if your income fell.

Your eligibility for an unencumbered mortgage will depend on the loan to value hence the amount you want to take out as a mortgage.

A high loan to value may reduce the pool of mortgage lenders available to you.

If you are remortgaging for a buy to let property rather than a residential property then the eligibility terms will change a bit. 

The mortgage lender may want to see a rental coverage ratio of at least 125% and be satisfied that you have some experience in the buy to let mortgage market.

Can you get an unencumbered mortgage with bad credit?

Yes, you may be able to get an unencumbered mortgage with bad credit but this will heavily depend on the mortgage lender and their lending criteria.

Many mortgage lenders will consider bad credit borrowers based on how long ago the bad credit was incurred.

They may ask to know what type of bad credit it was and under what circumstances was the bad credit incurred.

Were you in financial difficulty? Was there a financial crisis in the economy? Were you made redundant?

They will also want to see your credit history since the bad credit to ensure you have shown better credit behaviour.

Based on the above the lender will decide if to lend to you or not?

If you have bad credit you could expect a lower loan to value and higher mortgage rates but there may be mortgage lenders who could still offer you an unencumbered mortgage at a competitive rate.

Bad credit could include:

  • Missed or late credit repayments
  • A county court judgement
  • Ad debt management plan
  • An individual voluntary arrangement
  • Bankruptcy
  • A home repossession

If you are worried about not being able to secure an unencumbered mortgage or remortgage due to bad credit then you may want to speak to a bad credit mortgage broker who will have experience of the mortgage lenders who are more likely to accept you.

Which mortgage lenders offer unencumbered mortgages?

The list of mortgage lenders who offer an unencumbered mortgage may change from time to time so if you want to know which mortgage lenders currently offer an unencumbered mortgage then you should speak with a mortgage broker.

Unencumbered mortgages may also be treated differently from one mortgage lender to another,

Some mortgage lenders treat unencumbered mortgages as new mortgages as because you don’t have any existing mortgage on your property it essentially isn’t a remortgage to them.

There are also mortgage lenders who treat an unencumbered mortgage as a remortgage.

Regardless of which viewpoint they take, the unencumbered mortgage product features don’t generally change and you may still be able to get one.

Getting an unencumbered mortgage for debt consolidation

You may be able to get an unencumbered mortgage for debt consolidation but you should be aware that not all mortgage lenders may accept this as a reason to get a mortgage.

You may want to get an unencumbered mortgage for debt consolidation as it reduces the total cost of interest you may have had to pay on all the debts you consolidate.

Using an unencumbered mortgage to consolidate debts may also make it much easier for you to manage your finances as it replaces several monthly repayments with one.

The lender will want to know what the purpose of the unencumbered mortgage is and if you plan to use it to consolidate business debts or tax payments then you may find that the number of lenders available to you will fall.

That being said, a specialist mortgage broker may be able to help you find a mortgage lender willing to lend to you.

Getting an unencumbered mortgage for an inherited property

When dealing with a death in the family there can be a lot of mixed emotions and some times disputes which lead to charges being placed on the estate.

Most commonly disputes arise when two people have inherited the same property.

If you have inherited property then one way to release capital from the property is by using an unencumbered mortgage.

You can then use the funds to buy another property to live in whilst you rent out the unencumbered property.

This is known as a let to buy mortgage.

Most mortgage lenders will want you to have owned the inherited property for at least 6 months but there are lenders who may accept much less. 

You should speak to your mortgage broker about this.

Getting an unencumbered mortgage for a property in bad condition

It is very common for people to buy homes in cash and then look to get an unencumbered mortgage to fund development costs. 

It could also be the case that your property has fallen into disrepair and you want to use an unencumbered mortgage to renovate it.

Unencumbered mortgages for bad condition residential homes

If you have a residential home then getting an unencumbered mortgage for it should be straightforward. The only issue most mortgage lenders have is if the property is uninhabitable. 

If this is the case then you may struggle to find a mortgage lender willing to lend on it and you may have to seek alternative finance such as a bridging loan or home equity loan.

Mortgage lenders may consider a  home uninhabitable if it has issues such as a non-functioning bathroom or kitchen.

Unencumbered mortgages for bad condition investment homes

You may have purchase sn unencumbered home with cash due to the advantages that purchasing a home with cash may have brought.

This could have been because:

  • Cash offered you a faster deal and a mich cheaper deal
  • You couldn’t get a mortgage in the property as it was non-mortgageable.
  • With cash, you could seel the property within 6 months as you didn’t have to follow the 6 months rule set by most mortgage lenders.

You may be able to get an unencumbered mortgage on such a property and then rent it out to make a return.

You should be aware that most mortgage lenders will want you to have owned the property for at least 6 months but there are mortgage lenders who will consider less.

If you want to get an unencumbered mortgage but have owned the property for less than 6 months then you could speak to a mortgage advisor.

Use an unencumbered mortgage broker

You may want to consider using an independent mortgage broker to get a mortgage.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. 

The mortgage broker will then assist you in making a full mortgage application and securing your unencumbered mortgage.

FAQs: Unencumbered mortgage

Can I remortgage if I have paid off my mortgage?

Yes, you can remortgage if you have paid off your mortgage This is known as an unencumbered mortgage. You may be able to borrow as much as 90% of the equity in your home based on your mortgage affordability.

In this brief guide, we are going to discuss what an unencumbered mortgage is.

If you have any questions or comments or questions please let us know.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.

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