When searching for a new home, potential buyers have to consider a lot of different things. One of the main issues that they will encounter is the size of the mortgage payments they are expected to make and how that will fit into their monthly budget. It’s to note that when buying a condo, always be sure to visit a mortgage broker. For many, this raises the question of whether or not the rates are higher for a condo or house, which we will aim to answer here.
Are They Higher?
In simple terms, the mortgage rate you can expect to pay for a condo is higher than the one you would expect to pay for a house. This may be a little surprising to some, as the overall cost of a condo is usually lower, but it is true in the vast majority of cases.
In fact, statistics have shown that the mortgage rate you can expect to pay for a condo is usually going to be somewhere in the region of 0.125 to 0.25 percent higher than that of a house. While this rate can be reduced if you are able to place a large initial down payment, you are going to be looking at paying off around 25% of the value of the condo at the first bite in order to bring the mortgage rate below that of a house, which is not possible for many people.
Why Is It Higher?
There are a number of different reasons why you should expect to pay a higher mortgage rate on a condo than you would a house. Firstly, it is important to remember that condos are complex buildings with multiple units, all of which have to be taken into account by your lender at the point of purchase. If the owners of the other units are unable to make their payments, the value of the complex as a whole will go down. This often means that lenders charge a higher rate to put off people who are unable to handle the monthly payments.
You also need to consider the fact that condos present a higher risk to lenders, particularly if the complex has multiple investors. If one of those investors pulls out, the entire complex is at risk, which leads to lenders charging higher rates.
Finally, there is also the issue of a lack of competition in the condo financing area. Whereas practically every mortgage provider will be able to offer services for houses, far fewer offer the same for a condominium. As such, there is less competition, which results in higher rates being charged.
Contact Rakhi Madan if you are looking for a condo and need a Toronto Mortgage Broker to help you get the best condo mortgage.