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Can I Remortgage If I Own My House Outright?
You may wonder if you can remortgage your house if you own it outright. When you own an unencumbered (mortgage-free) property, you can use its value as security for a new mortgage and release some of the capital locked up in it.
An unencumbered remortgage will give you access to a lump sum of money at a lower interest rate than other types of borrowing, such as a personal loan. The money could be useful for home improvements, helping a family member to get on the property ladder, or perhaps buying another property.
Here, we explore the advantages of remortgaging a property you own, the eligibility criteria, and how to get the ball rolling.
What Does it Mean to Remortgage a Home You Own Outright?
Owning your home outright means that you have fully paid off your mortgage and have complete ownership of the property. There are no remaining debts or obligations to a lender, and you have full equity in the home.
In the UK, remortgaging refers to the process of switching from one mortgage deal to another, often with a different lender. This is typically done to secure a better interest rate, adjust the terms of the mortgage, or release equity from the property. Remortgaging can help homeowners save money on their monthly payments, access additional funds, or better align their mortgage with their financial goals.
Of course, you can't switch mortgage deals if you don't have a mortgage on your property, but you can take out what is known as an 'unencumbered remortgage' on your property.
What is an Unencumbered Remortgage?
Applying to remortgage a house you own outright can be known as an ‘unencumbered remortgage’. This is because the new mortgage will not be 'encumbered' by any existing debt you have with a lender.
If you own an unencumbered property, you own 100% of the equity in that property. This may be because you have already paid off your mortgage in full, bought the house with cash, or inherited a mortgage free property.
Although technically, you are not 'remortgaging' your house since it is mortgage free to begin with, many lenders still refer to the process as a remortgage. In contrast, other lenders might view the process as a new property purchase.
Either way, you are in a great position to take out a long term loan on your property. As long as you meet typical mortgage lending criteria, you should have a wide range of products to choose from.
How Does an Unencumbered Remortgage Work?
An unencumbered remortgage works in a similar way to a typical residential mortgage.
When you apply for a residential mortgage, you are usually required to put down a deposit and borrow the rest of the money to complete the purchase. Depending on the size of your deposit and the value of the house you want to purchase, the lender will calculate the interest rates you pay on the loan. The higher your deposit, the less money you borrow to complete your purchase, and the lower your loan value (LTV).
With an unencumbered mortgage, you won't need to pay a deposit and depending on how much money you want to release from your unencumbered property, a lender will offer you borrowing rates based on loan to value (LTV).
Calculating Loan to value (LTV)
Suppose your house has a market value of £500,000 and you want to borrow £100,000.
To work out the loan to value, you divide the loan by the value of the house and then multiply this figure by 100.
In this scenario: 100,000 / 500,000 x 100
LTV = 20%
You could borrow up to around 85% of the value of your home but bear in mind that the higher the LTV, the more expensive the loan will be. With a lower LTV, you'll pay cheaper interest rates and be able to choose from a broader range of products.
Why Remortgage a House I Already Own Outright?
Owning your own home outright usually means that you're financially comfortable. The largest monthly outgoing for most households is their rent or mortgage payments. It's good to be mortgage free, so why would you consider remortgaging a house you already own?
Circumstances can change, or a situation may arise that makes remortgaging a property you own outright an excellent way to release funds. Unencumbered properties are commonly remortgaged for the following reasons:
- Home improvements or repairs
- To help a dependent pay for university fees
- To buy a holiday home
- To help a family member get on the property ladder
- To pay for legal fees
- To consolidate debts
- A necessary purchase such as a new car
- To buy an investment property
- Purchase a holiday home
A lender will want to know what you intend to do with the money released from your property. Please speak to one of our expert mortgage advisors to discuss your borrowing plans and be matched with the most suitable lender.
Important Considerations
When you refinance your home to release equity for any purpose, you should weigh up the pros and cons of taking out a long-term loan and your ability to manage the repayments. We encourage you to think through the following points:
- Are you in a secure financial position to afford the monthly repayments on a mortgage loan? Is anything likely to change that might make this more difficult?
- Would a credit card or personal loan be a better option? This type of borrowing tends to be more expensive in the short term, but you could save money in the long term as you won't be paying interest over a lengthier period.
- Consult with a good mortgage advisor to help you review your circumstances and what you need the money for to help you determine if remortgaging your unencumbered home is your best option.
What Are the Eligibility Criteria for an Unencumbered Remortgage
Applying for an unencumbered remortgage is usually straightforward because you own your property outright and present less risk to a lender.
Lenders will, of course, want to know how much you intend to borrow, the market value of your house, as well as whether you can afford the repayments. To approve your application, they will need to assess the following:
- Your credit history
- Proof of identity and your age
- Your income stability
- Your outgoings (usually 3-6 months of bank statements)
- Information about any other debt you have (credit cards, loans)
- A list of your dependents
- Details about the type of property you wish to mortgage
How Much Can I Borrow with an Unencumbered Remortgage?
The higher the LTV you are looking to borrow, the more concerned your lender will be about your ability to afford the new repayments during a long term remortgage agreement. A low LTV presents less risk to lenders and might encourage them to present you with the best deals and rates.
The maximum value you can borrow against a house you own outright can vary greatly and often depends on the lender. The maximum LTV is set by each lender and is typically around 80% - 85%.
The value of your property will be the crucial factor in calculating how much you can borrow. Your property will be independently valued as part of the remortgaging process. The maximum loan offered to you will also depend on your circumstances, age, income, and credit history. All lenders apply their own affordability criteria to ensure that the loan can be comfortably repaid.
How Do I Remortgage a House That I Already Own?
Applying to remortgage a house you own outright is similar to a standard mortgage application. Here are the steps you need to take to begin the remortgaging process with Clifton Private Finance:
- Get in touch with one of our qualified, experienced mortgage brokers to discuss your needs.
- Your mortgage broker will talk you through all your options and explain the pros and cons of different remortgage deals.
- When you’re happy to proceed, your mortgage broker can help you prepare all the necessary paperwork to apply for an unencumbered remortgage.
- We’ll ask you to prepare documents, including bank statements, identification and proof of income in the form of payslips or tax returns.
- Your broker will manage the entire process for you and ensure your application runs as smoothly as possible.
At Clifton Private Finance, our specialist mortgage advisors offer a highly professional service, providing you with expert advice and support to secure the best unencumbered remortgage deal on the market today.
