If you own a mortgage-free property, meaning you have paid off your mortgage or bought the property outright, you have what is known as an unencumbered property. With no outstanding loans or mortgage repayments, you have full control over your home and its value. But what if you need to access funds? Understanding what is an unencumbered property and how to raise money on it is essential if you’re considering borrowing against your home.
Many people in this position look to raise funds—whether for home improvements, property purchases, or debt consolidation. Fortunately, you have several options to unlock the value of your unencumbered home and access money when needed. Eden Hawk, a trusted mortgage broker, can help you find the best solution for your needs, whether that’s an unencumbered remortgage, a secured loan, or equity release.
How to Raise Money on an Unencumbered Property
Even if you don’t have an existing mortgage, you can still borrow against your property’s value. Here are some of the main ways to do this:
1. Getting an Unencumbered Mortgage
A mortgage on an unencumbered property is similar to a standard mortgage, except there’s no existing mortgage to replace. Most mortgage lenders, including mainstream lenders and specialist lenders, offer mortgages to homeowners who are mortgage-free. This is often called an unencumbered mortgage.
How It Works:
- You apply for a new mortgage, just as if you were buying a home.
- The lender assesses your employment status, credit history, and financial stability.
- If approved, you receive a lump sum and start making monthly mortgage repayments.
Pros:
✔ Competitive interest rates due to the strong financial position of mortgage-free homeowners.
✔ Ability to release capital tied up in your home.
✔ Potential for lower monthly payments than other borrowing options.
Cons:
✘ Your home is at risk if you miss mortgage payments.
✘ A financial commitment that requires careful consideration.
2. Unencumbered Remortgage
If you own your home outright and want to raise money, you can remortgage an unencumbered property. This is useful if you need funds for home improvements, an inherited property, or other financial needs.
Key Benefits:
- Some unencumbered mortgage lenders offer residential remortgage deals with flexible terms.
- You can consolidate debts by using the funds to pay off outstanding debts.
- A specialist mortgage broker can help find the best mortgage deals based on your personal circumstances.
3. Secured Loan (Second Charge Mortgage)
Instead of a new mortgage, you can take out a debt-secured loan against your property. This is useful if you already have a good mortgage deal on another property and want to keep it.
How It Works:
- You borrow money using your home as security.
- The lender places a legal charge on your property.
- You make monthly repayments based on agreed terms.
Pros:
✔ Allows you to keep your existing mortgage on another property.
✔ Suitable for homeowners with bad credit history who may struggle to get a new mortgage.
Cons:
✘ Higher interest rates than standard mortgages.
✘ Risk of repossession if you fail to meet financial obligations.
4. Bridging Loan – Short-Term Finance
A bridging loan is ideal if you need fast access to funds, such as when buying a property before selling another.
Key Features:
- Short-term borrowing, usually up to 12 months.
- Higher interest rates than standard mortgages.
- Requires a strong financial position or an exit plan.
5. Equity Release – For Over-55s
If you are over 55, an equity release scheme allows you to unlock cash from your home. A mortgage broker or financial advisor can help determine if this option suits your personal circumstances.
Types of Equity Release:
- Lifetime Mortgage – Borrow money against your home with no required monthly payments. The loan and interest are repaid when the home is sold.
- Home Reversion – Sell part of your home while continuing to live there rent-free.
Pros:
✔ No need to make monthly mortgage repayments.
✔ Remain in your home for life.
Cons:
✘ Reduces inheritance value.
✘ Can be expensive due to interest rates and legal fees.
Factors That Affect Your Ability to Get an Unencumbered Mortgage
Lenders assess several factors when reviewing an unencumbered mortgage application:
1. Credit History and Financial Stability
Your credit rating affects the types of mortgage deals available. If you have bad credit or serious credit issues, a specialist mortgage broker can help you find lenders who accept poor credit applicants.
2. Employment Status and Income
Being financially stable improves your chances of approval. If you are self-employed, lenders may require proof of earnings.
3. Property’s Value
The amount you can borrow depends on your property’s value. Mortgage providers typically lend a percentage of this (Loan-to-Value ratio).
4. Other Financial Obligations
Lenders will consider any outstanding debts, including personal loans, existing mortgages, or other financial commitments.
Final Thoughts – Is Raising Capital on an Unencumbered Property Right for You?
Owning a mortgage-free home puts you in a strong financial position. Whether you choose an unencumbered remortgage, a secured loan, or release equity, you must consider the financial commitment involved.
Before Proceeding, Ask Yourself:
Do I need the money?
Borrowing should be a last resort if you can cover costs through savings.
Can I afford repayments?
Missing monthly payments can lead to financial difficulties.
Have I explored all options?
A mortgage adviser or specialist mortgage broker can help find the best deal for you.
If you’re unsure, speak to a financial advisor before making a decision. With careful consideration, you can use your unencumbered property to raise funds without putting your financial future at risk.
