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Unencumbered property is any real estate holding that is not currently under a lien or mortgage agreement, or being used as collateral for any type of loan. Because the property is clear of all debt, the owner does not receive much in the way of tax breaks on the property in many cases. Still, unencumbered property represents a physical asset that is considered to be free and clear for the use of the owner as he or she sees fit.
One advantage to unencumbered property is that lenders will often consider the holding to be an excellent collateral for both short term and long term loans. Because the real estate is unmortgaged property, there is less risk incurred by the lender. Landowners may choose to use this type of property as a means of obtaining a loan that amounts to far less than the market value of the holding. This will often help to expedite the processing of the loan.
For persons who hold several different properties in their possession, it is not unusual for one parcel of unencumbered property to be set aside as use for collateral for any loans. This is typically not the home used by the owner, but may be a tract of undeveloped land or a rental property that is currently free and clear of any mortgage or lien. The practice of securing a loan using this unencumbered property as collateral for a short term loan may also allow the homeowner to realize some small amount of tax relief as well, depending on the country of jurisdiction.
Unencumbered property is often considered the goal of many homeowners. The typical homeowner looks forward to the day when any liens or mortgages that are currently attached to the real estate are paid in full. It is not unusual for celebrations to take place in some cultures once the mortgage has been discharged. In North America, the homeowner may hold what is referred to as a mortgage burning property, where the original mortgage set on fire as part of the festivities.