Primary and Secondary Residences: Know the Key Differences

Mortgage Borrowers in UtahThanks to the much-improved economy the United States now have, potential and existing mortgage borrowers now have the chance to jump at lower interest rates. Those who have existing debts also have more opportunities to manage their mortgages more efficiently.

However, the same factors used by all mortgage lenders in assessing how much interest rate they charge each borrower still apply. Also, for second home buyers, know that you will receive an interest rate different from the one you have on your first home.

Primary Residence: An Overview

When you are a first-time home buyer, lenders consider the property you will purchase as a primary residence. Also commonly referred to as main or principal residences, primary homes are basically dwellings where one or more individuals live for the majority of the time.

You can only have one primary residence at any given time whether you live in it 50 per cent of the time and the remaining half in another dwelling.

Primary vs. Secondary Residences

There are several aspects that distinguish primary and secondary residences. First is the interest rate. Secondary residences come with higher interest rates. Another is the definition itself, as a secondary or non-principal residence is where you spend only a limited amount of time. Secondary residences usually pertain to vacation homes, resort properties, or units you rent out to other people. Another key difference is you can have as many secondary homes as you want, whereas you can only have one principal residence.

Key Reasons for Higher Secondary Residence Mortgage Rates

There are many reasons you will receive higher interest rates with your mortgage for a secondary residence. However, one of the key reasons is due to your budget. Lenders believe that borrowers who take out secondary mortgages have higher defaulting risks since they have a smaller budget as they already have an existing loan, Altiusmortgage.com explains. Another reason is due to lenders thinking you may use your secondary residence as a source of income, such as renting it out to tenants.