Key Takeaways
- Owning free-and-clear means no mortgage or liens on your property.
- Homeowners have complete ownership and no monthly mortgage payments.
- Free-and-clear properties offer flexibility for selling or refinancing.
- No mortgage interest deductions available with free-and-clear ownership.
Article Summary
Free-and-clear refers to a property that is owned outright without any mortgages or liens against it.
Free-and-Clear: Explained in Plain English
Owning a property free-and-clear means that a homeowner has full ownership of their property without any outstanding debts, mortgages, legal claims, or liens against it.
For a first-time home buyer who uses mortgage financing to buy their first home, the property cannot be free-and-clear until its mortgage is paid in full and the lender releases its lien from the home.
According to the National Association of REALTORS®, 94 percent of first-time home buyers use mortgage financing.
Homes with tax liens and mechanic's liens are also not free-and-clear because a third party has legal claims on the property.
Owning a property free-and-clear gives financial and legal freedom.
Homeowners who own their home free-and-clear can sell their home, refinance it, make repairs, and lawfully use their property how they desire.
Free-and-Clear: A Real World Example
Imagine a homeowner who inherits a home from their parents. The inherited home has no mortgage or liens attached, which means it was owned free-and-clear before it was bequeathed.
Meanwhile, the homeowner is starting their own business and needs access to capital.
Instead of taking a high-risk bank loan for a new business, they open a low-risk home equity line of credit on the inherited home, using it as collateral for a mortgage. The bank approves their mortgage, attracted by the low risk associated with a free-and-clear property.
Common Questions About Free-and-Clear
Get answers to frequently asked questions about free-and-clear ownership, benefits, and ongoing responsibilities.
