Remortgaging an Unencumbered Property
Owning a property outright is a significant achievement and provides financial freedom.
However, even without a mortgage, you might find yourself needing extra funds, whether for home improvements, a new investment, or other personal reasons.
This is where remortgaging an unencumbered property comes into play. In this guide, we’ll explore the concept of remortgaging an unencumbered property, the benefits and potential risks involved, and how Kerr & Watson can guide you through the process to secure the best mortgage deal for your individual situation.
What is an Unencumbered Property?
An unencumbered property is a property that has no outstanding mortgage or loans against it. This can occur if you have fully paid off your mortgage, bought the property with cash, or inherited it without any financial liabilities attached. In essence, owning an unencumbered property means you own 100% of the property’s equity and hold the deeds of the property.
Why Consider Remortgaging an Unencumbered Property?
There are several reasons why homeowners might consider remortgaging their unencumbered property:
- Releasing Equity: Access funds for home improvements, buying another property, or making a significant purchase like a new car.
- Debt Consolidation: Combine multiple debts into a single mortgage payment, potentially at a lower interest rate. Professional advice should always be taken here as this will result in higher costs over the period of the term. Remortgaging for Debt Consolidation
- Investment Opportunities: Use the equity to invest in buy-to-let properties or other ventures.
- Personal Projects: Finance personal projects or large expenses, such as a once-in-a-lifetime holiday or starting a new business.
Qualifying for an Unencumbered Mortgage
Qualifying for a mortgage on an unencumbered property may be more straightforward, as the property serves as full security for the loan. However, lenders will still require you to meet certain criteria:
- Affordability Check: Lenders will assess your income, credit history, and current financial situation to ensure you can afford the mortgage repayments. Check out our Affordability Calculator.
- Loan-to-Value Ratio (LTV): This ratio compares the loan amount to the property’s value. A lower LTV often means better mortgage rates. For example, borrowing £180,000 on a £300,000 property results in a 60% LTV.
- Employment Status: Your employment and income stability will impact your eligibility and the terms of the mortgage. Retirees or those nearing retirement may face additional scrutiny regarding repayment terms to ensure they can continue paying the mortgage.
- Credit Score: A good credit score can open the door to better mortgage deals. However, even with a poor credit history, options may still be available, although they may come with higher interest rates. To get a copy of your credit file, go to www.checkmyfile.co.uk
Find out Your Options
Is It a New Mortgage or a Remortgage?
Technically, since an unencumbered property has no existing mortgage, the process of taking out a mortgage isn’t a remortgage in the traditional sense. However, many lenders and brokers refer to it as a “remortgage” for convenience. Whether it’s treated as a new purchase or a remortgage, the process and available mortgage products are similar.
Considerations Before Remortgaging
Before deciding to remortgage your unencumbered property, consider the following:
- Financial Stability: Assess whether you can comfortably afford the new monthly payments, including any interest and fees.
- Purpose of Funds: Clearly define why you need the funds and whether taking out a mortgage is the best option.
- Long-term Implications: Understand the long-term financial commitment and the potential impact on your lifestyle.
Risks and Benefits of Remortgaging
Benefits:
- Access to Capital: Unlock significant sums of money tied up in your property.
- Potential for Lower Interest Rates: Secure lower interest rates compared to unsecured loans.
- Flexibility: Use the funds for various purposes, from home renovations to investments.
Risks:
- Increased Financial Commitment: Taking on a new mortgage means monthly payments, which could strain your finances.
- Risk of Repossession: Failure to keep up with mortgage payments could lead to losing your home.
- Impact of Interest Rates: Changes in interest rates can affect your monthly repayments.
Can You Remortgage with Bad Credit?
Yes, it’s possible to remortgage an unencumbered property even with bad credit, though it may limit your options. Lenders will consider the severity and recency of credit issues, such as missed payments, defaults, or more severe cases like IVA’s or bankruptcy.
Conclusion
Remortgaging an unencumbered property can be a smart financial move, offering access to funds for various purposes.
However, it’s essential to consider the implications carefully and seek professional advice to ensure it’s right for your unique situation.
Kerr & Watson is here to help you make informed decisions and secure the best possible mortgage deal.
Contact us today to discuss your options.
