You may consider applying for an investment property mortgage when things are going well. And you may be thinking of buying a second home for this investment. But this leaves the question, is a second home an investment property?
Read on to learn more about the key differences between a second home and an investment property and how this affects mortgages you can apply for.
What Is A Second Home?
A second home is a house that you buy with the intention of occupying for at least some of the time. It is a property you intend to visit regularly, for example, on holidays. Another example is when you use the property as your “home away from home” when you are a frequent business traveler.
Of course, generating income from your second home is possible if you rent it out while not using it for yourself.
What Is An Investment Property?
When you buy an investment property, the sole intention is to earn an income. For example, you may rent out the property or renovate it and resell it for a profit. An investment property can be defined like this:
- It is not your principal place of residence.
- It is bought as an income generator, through rentals, appreciation profit or for tax benefits.
Some examples of investment properties include:
- Residential properties for rental
- Commercial properties for rental
- Properties bought for the express intention of reselling in a short time frame
Second Home Mortgage Versus Investment Property Mortgage
A mortgage for your primary residence will always be the easiest to secure, and it will also be the least expensive in terms of the interest rate you will qualify for. Deposits for primary residences are also generally a low percentage of the total.
A second home mortgage will be more challenging to secure, as the lender needs to be sure that you can service the debt incurred on your primary residence and your second home. A larger down payment may also be required.
In general, investment property mortgages will most likely require a larger deposit than would apply to a second home. However, some significant tax deductions are available on an investment property for expenses like repairs, maintenance and interest costs.
Get in touch with Simpler today to learn more about a second home or investment property mortgage. Our expert mortgage brokers will give you the best advice and find the best mortgage loans to suit your requirements - all done simply. Online application options are available on our website.