You may already own a primary residence and are considering buying a home for investment purposes. Getting a mortgage for an investment property is similar to a typical residential mortgage, but there are some differences.
Residential vs. commercial
There are two important elements when applying for an investment mortgage. The first aspect is whether the property you’re looking at is considered residential or commercial. Generally speaking, if the property is in a building with four or fewer units, it’s considered to be residential. However, the building has more than five units, it’s probably zoned as commercial. A residential investment property is only slightly more onerous to qualify for compared to a primary residential mortgage. However, if the building is considered commercial, you’ll have to get a commercial loan. As a result, the interest rate can be significantly higher and the terms more stringent.
Owner occupied vs. non-owner occupied
The second important element of applying for an investment mortgage is whether you intend to occupy the home once it’s purchased. This affects the down payment you must make. If there’s four or fewer units in the property and you will occupy at least one, then it’s considered to be owner occupied.
As of 2010, Canadians must make a down payment of at least 20% if they won’t be occupying an investment property for which they’re taking out a mortgage. If there are one to two units in the building and the purchaser will be occupying at least one, the minimum down payment is 5%. This rises to 10% if the property has three to four units. The purchase price also matters when it comes to down payments. If the property is owner occupied and the purchase price is above $500,000 but below $1 million, the minimum down payment is 5% of the first $500,000 plus 10% of any amount above $500,000.
Investment property rates
Mortgage rates on investment properties (owner occupied) are similar to those for primary mortgages. That said, some lenders do not offer investment property mortgages at all.
Mortgage default insurance
You may need to purchase mortgage default insurance, which protects the lender in case you can’t make your payments. The rate varies based on the size of your down payment. Premiums are also much higher if the property won’t be owner occupied.