An unencumbered mortgage is a kind of mortgage you obtain on a property you own completely. It could be that you’ve paid off your current mortgage in full, bought the house in cash, or you have inherited an uninvolved mortgage-free home.
If your property does not have any outstanding debts or charges for it, then it’s not encumbered. If you’re looking to remortgage and then let some equity to make improvements to your home or for other reasons having no debt puts you in a good position. It is still necessary to meet the lender’s requirements 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 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 are the owner of all the equity. You’ve paid off your entire mortgage.
Where did this word originate 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 is free of debt and other financial obligations.
If you’re considering taking out an unencumbered loan it’s a loan you’d get on a house that has no mortgage due.
A mortgage that is unencumbered lets you let some capital in the home to cash through borrowing against the worth of your home. Then, you can use the money to pay for repairs to your home or take care of obligations, or even as the deposit for a new residence, holiday home and buy-to let investment.
What do I need to know about qualifying for an unincumbered mortgage?
A mortgage application for an asset you own for yourself is similar to every other loan application. The lender will begin by conducting an affordability evaluation. This means they’ll examine your credit score, your income as well as your debt and the loan-to-value (LTV) to ensure that you’ll be able to pay back the loan.
A note about LTV. LTV is the amount of the mortgage in relation to the value of your home. If your home has a value of £200k and you wish 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 employment and age in consideration when you apply for a mortgage that is unconstrained. If, for instance, you’re close to your retirement date (or that you’re retired already) Some lenders might not be able to provide you with an extended-term mortgage. In this scenario it’s possible that you’ll be able to benefit from a shorter-term mortgage which is paid back in five, ten or fifteen years, instead of an a 30- or 35-year mortgage period.
Similar to your first experience when you applied for a mortgage, you’ll require up-to date financial and personal information, income proof and documents regarding outstanding loans, as well as any other documents that could help show that you are able to afford the monthly installments.
Unencumbered Mortgage Lenders: Is it the same as it’s a Remortgage?
Unoccupied homeowners are generally in a good position when it comes down to the process of remortgaging.
However, are you really refinancing? In essence, a remortgage replaces a mortgage agreement with a brand new one. Since your home isn’t backed by any mortgage, you’re not technically remortgaging it if 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 the process will be largely similar, regardless of what the lender decides to label it.
Is an unencumbered home loan right for me? Three factors to think about
If you own a non-mortgage property, it’s likely that you’re in a good financial situation. This means you’re not obligated to make each month mortgage installments (usually the biggest monthly expense for the majority of people). Also, it means that you have an asset you can utilize as a security to get loans against.
Therefore you could consider taking out a mortgage on your home that is unoccupied to earn cash and finance home improvement projects or investment properties is a good idea depending on the circumstances.
When you’re preparing to decide to apply for a non-encumbered loan consider the followingaspects:
What is the security of your financial position at present? The prospect of taking on a mortgage is a massive monthly cost, and the cost of interest and fees to add some spice. Are you able to afford the additional expense? Can you be able to afford it even if your circumstances changed?
Is taking out a mortgage be a good idea at this point? That is why would you like to make a loan on your property? What do you plan to do with the cash? Is it more sensible to apply for the loan on your own in particular if the goal is to make 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.
Do you know the risk that comes with it? The ability to own your home for free is a great situation for you to find yourself in. If you take out a mortgage against it could put it at risk. If you aren’t able to make the payments on time then you could end up losing your home.
Can I refinance my non-encumbered property if I have poor credit?
Like applying for a traditional mortgage or remortgage to obtain an unencumbered loan with bad credit might be a little more difficult. But, it’s not difficult.
If the factors that are affecting your credit score are less or more recent (a unpaid mobile phone bill that was paid just five years back, as an example) however, you’ll have a decent possibility of getting approved.
On the other hand severe credit problems like repossession, bankruptcy as well as County Court Judgements (CCJs) in your credit report can restrict the lenders you can choose from as well as mortgage deal will be accompanied by high interest rates.
There’s good news that there are ways you can make to boost the credit rating of your.