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Can I Remortgage My House If I Own It Outright?

If you own your house outright, you may wonder if you can remortgage. You may be able to release some of the capital locked up in an unencumbered (mortgage-free) property through a new mortgage by using its value as security.

 You can obtain a lump sum of money with an unencumbered remortgage at a lower interest rate than with a personal loan. This money could be used for home improvements, to help a family member get on the property ladder, or to buy another property.

We discuss the advantages of remortgaging a property you own, eligibility criteria, and how to get started. 

The following are included in this guide:

  • Unencumbered remortgaging - what is it?

  • Unencumbered mortgages: how do they work?

  • What are the benefits of remortgaging a home I already own?

  • Considerations to keep in mind

  • Unencumbered mortgage eligibility criteria

  • What is the maximum amount I can borrow with an unencumbered mortgage?

  • Unencumbered mortgages: how do I apply?

 Unencumbered remortgages: what are they?

Unencumbered remortgaging refers to remortgaging a house you own outright. The new mortgage will not be 'encumbered' by any existing debt you have with a lender. 

Your equity in an unencumbered property is 100% if you own it free and clear. You may have already paid off your mortgage, bought the house with cash, or inherited a mortgage-free house. 

Since your house is mortgage-free to begin with, technically, you are not remortgaging it, but many lenders still call it that. Alternatively, other lenders may see the process as a new property purchase.

You are in a great position to take out a long term loan on your property either way. You should be able to choose from a variety of mortgage products if you meet standard mortgage lending criteria.

Unencumbered remortgages: how do they work?

Unencumbered remortgages work similarly to residential mortgages.

Most residential mortgages require a deposit and a loan for the remaining balance. The lender will calculate your interest rate based on the size of your deposit and the value of the house you wish to buy. As your deposit increases, your loan value (LTV) decreases and you borrow less money to complete the purchase.

Depending on how much money you want to release from your unencumbered property, a lender will offer you borrowing rates based on your loan-to-value (LTV).

Calculating Loan to value (LTV)

Suppose your house has a market value of £500,000, and you wish to borrow £100,000 from a bank.

The loan to value is calculated by dividing the loan by the house's value, then multiplying this figure by 100.

As an example: 100,000 / 500,000 x 100

LTV = 20% 

 It is possible to borrow up to 85% of your home's value, but keep in mind that the higher the LTV, the more expensive the loan. You'll pay cheaper interest rates and be able to choose from a wider range of products if your LTV is lower.

What are the benefits of remortgaging my house that I already own outright?

The likelihood of you being financially comfortable is higher if you own an outright home. Most households have a large monthly outgoing in the form of rent or mortgage payments. A mortgage-free house is a good thing, so why would you remortgage one?

It is possible that circumstances change, or a situation arises that makes remortgaging a property you own outright an excellent way to release funds. Remortgaging unencumbered properties is common for the following reasons:

  • Repairs or improvements to the home

  • Paying university fees for a dependent

  • Buying a holiday home

  • Helping a family member get on the property ladder

  • In order to pay legal fees

  • An essential purchase, such as a new car

  • In order to consolidate debts

  • The purchase of an investment property

  • Invest in a holiday home

When you release the money from your property, lenders want to know what you plan to do with it. We will match you with the most suitable lender based on your borrowing plans.

Factors to consider

When refinancing your home to release equity, you should weigh up the pros and cons of taking out a long-term loan and your ability to make the payments. Consider the following points:

  • Do you have the financial security to repay a mortgage loan on a monthly basis? Are there any changes that might make this more difficult?

  • Is a credit card or personal loan a better option?  The short-term costs of this type of borrowing tend to be higher, but the long-term savings are greater since you won't be paying interest over such a long period.

  • You should consult with a good mortgage advisor to determine if remortgaging your unencumbered home is the right decision for you.

Unencumbered remortgaging eligibility criteria

Remortgaging your property without encumbrances is usually straightforward since you own the property outright and present less risk to the lender.

A lender will, of course, want to know how much you plan to borrow, the market value of your home, and whether you can afford the payments. The following criteria must be met in order for your application to be approved:

  • Credit history

  • Outgoings (usually 3-6 months of bank statements)

  • Income stability

  • Any other debts you have (credit cards, loans)

  • Proof of identity and your age

  • You should provide a list of your dependents

  • Describe the type of property you wish to mortgage

Is your age an important factor?

Lenders may be less likely to give you a long-term mortgage loan if you are nearing or over retirement age. There may be a need for shorter mortgage deals over two, five, or ten years.

What are the problems associated with adverse credit?

An unencumbered mortgage application can be complicated by poor credit. Nevertheless, it's not impossible. It's always a good idea to clean up your credit history if you can.  

Your circumstances will determine what remortgage deals are available to you. An expert mortgage advisor can help you understand your options and connect you with a lender who will offer you the best terms. Unencumbered remortgages can still be obtained even with bad credit.

How much can I borrow with an unencumbered remortgage?

During a long-term remortgage, your lender will be more concerned about your ability to afford the new repayments the higher the LTV you are looking to borrow. Lenders may prefer to offer you the best deals and rates if your LTV is low.

Depending on the lender, the maximum amount you can borrow against a house you own outright can vary greatly. Typically, lenders set the maximum LTV between 80% and 85%.

To determine how much you can borrow, you will need to know the value of your property. During the remortgaging process, your property will be valued independently. Also, your credit history, age, income, and circumstances will determine the maximum loan you can receive.  In order to ensure that the loan can be comfortably repaid, each lender applies its own affordability criteria.

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