I Own My House Outright: Can I Remortgage? – Unencumbered Mortgages

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Owning an unencumbered property means owning a property outright, and thereby not hindered or obstructed by mortgages or potential collateral claims against your assets, known as liens. By having no outstanding debt toward the property, you have “full equity”. This means you’d be entitled to all proceeds of the sale, a significant financial asset. 

So, can you remortgage this property? The answer is yes. This article will explore in depth the reasons why you might want to remortgage, what it involves, and the benefits and potential risks involved in making this decision. 

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The Process of Remortgaging an Unencumbered Property

Mortgaging a mortgage-free property is called an unencumbered mortgage.

  • Property Valuation – The first step is property valuation. Lenders require a professional assessment of your property to find the market value of the property.
  • Choosing Lender – Now you need to choose a lender. Options for a lender include banks, building societies, or specialists. This is easily the hardest part, as the differing terms have a lot of factors to consider. Some of these include interest rates, fees, reputation, customer service, and finally – the fine print. 
  • (Optional) Find a Quality Mortgage Broker – Mortgage Brokers are full-time mortgage experts. Here at When the Bank Says No, we have more access to lenders than the high street banks themselves because of our extensive network of relationships. We have access to specialist lenders alongside the ability to compare and select the best deals on the market. 
  • Legal Processes – The legal process segment includes legal checks and the prepping of mortgage documentation. A solicitor/conveyancer usually handles this process, ensuring all legal aspects are accounted for. 

Reasons to Get an Unencumbered Mortgage

There are several reasons to consider an unencumbered mortgage. These can be: 

  • Raising Capital for Investments – One of the main reasons for remortgaging is to gain the capital for investments elsewhere. This doesn’t necessarily have to be for the property itself, but for any number of things, such as businesses or other real estate entirely.
  • Home Improvements – Getting an unencumbered mortgage simply to improve the very same home is fairly common. This can be a practical way to enhance the living space and increase the property’s value. Renovations could be anything from energy efficiency solutions, such as insulation measures, or be as big as additional construction, such as building a conservatory. 
  • Debt Consolidation – An unencumbered mortgage can be an effective tool for consolidating your debts. Debts such as credit cards, personal loans or car loans can be solved in one go from the remortgaging, leaving you owing money to only one entity. Mortgages tend to be more flexible than other loans, after all. 
  • Others – Any number of uses could lead one to remortgage a mortgage-free property. Whether for a wedding, supporting family members, or educational expenses – we have seen many clients remortgage for these reasons. 

Advantages of Remortgaging an Unencumbered Property

When getting an unencumbered mortgage, you will find that you have several advantages on account of this being your second mortgage on the same property. 

Lower Interest Rates 

The original mortgage of your home will have fairly high interest rates. However, those with an unencumbered remortgage will gain access to lower interest rates due to the equity of your property, having been fully paid for, and also the fact that you’re considered much lower risk due to your proven ability to pay back large sums of money.

These interest rates may be reduced even further if you’ve managed to keep your credit score high. Paying outstanding debts, or making payments on a contract, improves your credit score. Off the back of a huge debt like a mortgage being paid, your credit score is likely in a fantastic position, making you look like an excellent repayment option for lenders. 

New Flexibility 

Remortgaging allows you much more control over the contract. For example, the length of the contract. You can tweak the mortgage duration to suit you best in a remortgage. The length of the duration is important because it dictates how much you’ll pay monthly. You pay more over longer periods than you do for shorter ones, allowing you to plan with precision that otherwise wouldn’t be possible. 

Another thing to consider is the possibility of overpayment. Some remortgaging deals offer the ability to pay more than the scheduled monthly amount when you have the financial capacity and will to do so. This will allow you to pay off the mortgage balance faster, and this also snips off some of the interest. That being said, these deals can come with limitations or penalties. 

Furthermore, payment holidays may be available in remortgage deals. This means you will be given a period, usually a few months, where you no longer need to make mortgage payments. This can be helpful if you find yourself in need of financial relief. 

Tax Advantages

There are several instances within a remortgage that may benefit you in terms of taxes. For example, if you use your remortgage funds for an investment such as a business, or another property, you could potentially reduce the taxable income by the amount of interest paid. The reason for this is simple, the interest expense is considered a cost of generating investment income. 

That being said, do not get your hopes set on this, as tax laws are complex and vary depending on where you are, as well as your circumstances. As such, you must work alongside someone well-versed in these areas. When the Bank Says No are expert mortgage brokers who not only understand the specific areas and circumstances in which you can benefit from tax deductions, but we can find the best remortgage deals on the market.

Improved Cash Flow

Lower monthly payments due to low-interest rates means that you’ll have more money to hand. The flexibility of your mortgage also means that you can save yourself from missing payments by changing the terms or taking a break, giving you greater flexibility. 

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Conclusion

Owning a property outright, remortgaging and using the bulk of the payment for investments is a common strategy among homeowners that can do it. However, to get the best out of what is many people’s once-in-a-lifetime opportunity, we recommend you approach a mortgage broker to get the right long-term contract for you. 


I Own my House Outright: Can I Remortgage? – Unencumbered Mortgages – FAQs

Can I get a remortgage with a poor credit history? 

Remortgaging with a poor credit history is possible, but it usually comes with more caveats. For example: 

  • Limited Options – The name of our company is When the Bank Says No, because the bank refusing mortgages is not uncommon. In the realm of poor credit history, your mainstream lenders will likely deny you. 
  • Higher Interest Rates – Poor credit history equals a much larger risk. As a result, lenders usually prefer to up the interest rates, to ensure some sort of return. 
  • Specialist Lenders – Specialist lenders are likely your only avenue. That being said, mortgage brokers usually have access to lenders like these quite often. 


That being said, consider the following: 

  • Equity – Remortgaging means you have equity in your home. The higher the equity, the higher the chances. 

What is the Difference Between Remortgaging and a Second Charge Mortgage? 

The difference is in the fundamental structure and purpose of both loans. 

Remortgaging

  • This is replacing your existing mortgage with another one. You can remortgage an existing property that you’ve paid off, or simply remortgage by changing. 
  • The purpose is raising funds, getting a better deal, or simply consolidating all of your debts into one. 
  • It often involves getting a new interest rate, changing the term length, and possibly lower monthly repayments. 

Second Charge Mortgage

  • A second-charge mortgage is also known as a secured loan. It’s an additional mortgage taken out on a property, meaning two will be active at once. 
  • It is secondary to the primary mortgage. In a default, the original mortgage is paid off first. 
  • The point of a second-charge mortgage is simple – it’s used when the borrower needs additional funds but doesn’t want to, or can’t, remortgage the loan they already have. 
  • Interest rates for second-charge mortgages are usually higher. This is due to the increased risk by the lender. 

What is an affordability assessment in an unencumbered mortgage?

This refers to a process where the lender evaluates your ability to afford new mortgage payments. This assessment considers the following factors: 

  • Income Verification – Your income sources are reviewed. This is to ensure you have a steady income that will cover mortgage payments. This includes wages from both traditional and non-traditional (self-employment, contractual) work. 
  • Outgoings and Debts – They will ask to go over your budgeting habits, as well as any outstanding debts. This allows them to get an idea of the outgoing amounts you have to commit to per month, and how much leeway you have to pay the mortgage. 
  • Financial Stability – Your financial stability includes things such as your savings, investment income and spending habits. 
  • Credit – Credit scores are often assessed to see just how well you’re doing at paying obligations. After completing all mortgage repayments and having an unencumbered property, your credit score is likely good. 

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What is the maximum age for unencumbered remortgaging? 

Unencumbered Mortgage lenders each have different maximum age requirements. As a result, we’ve put down the averages. The typical upper age limits seem to be 80-95 years old. That being said, some lenders don’t have an upper age limit at all. 

The age limit usually refers not to application, but rather the age the person will have to be by the time they’ve paid off their debts. For instance, some lenders will accept applications from borrowers as old as 80, but want the borrowed amount repaid by the age of 85.

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Emma Jones
Emma Jones
Emma began her career in Lloyds Banking Group, first in the unsecured & secured loans department at Halifax and later as a mortgage advisor at Lloyds. During 9 years in these roles and a further 2 years at Yorkshire Building Society, Emma was able to observe the impact of the recession, and how the banks let their customers down by denying loans and mortgages. Wanting to be a driving force for change, she stepped into a market advice role where she has been able to help clients when others couldn’t. Identifying a gap in the mortgage space, Emma went on to establish When the Bank Says No. As a keen property investor, she has been the focus of features in publications including The Sunday Times and This is Money. Emma’s greatest joy is overcoming the low expectations of their customers, many of whom have all but given up on getting a mortgage due. One thing Emma has learned through her own personal struggles is every client must be treated like a human and understood better by advisors and lenders in the industry. “We all have to navigate life events which can ultimately impact your financial status. It shouldn’t mean dreams of homeownership or business growth should have the breaks applied”. Emma and her team’s passion for helping people overcome the challenges they may face when applying for a mortgage have fuelled the success of When the Bank Says No.