Will my interest rate on my current mortgage change if I buy a new primary residence?

This was a question I saw on Reddit. Here is the actual question, "I currently have a condo as my primary residence but am thinking of moving to a single family home (same state). The condo, which will become a rental property, has a fixed rate mortgage, but if I change my primary residence will I be forced to take up a higher interest rate?"

Short Answer:

99% of the time, the answer is no. A change in the occupancy of a house will not change the interest rate. Mortgage interest rates can not be changed outside of the terms of the note, signed at closing. A fixed rate interest rate will always stay the same. An adjustable rate mortgage (ARM) will only changed by the terms set forth in the note.

Longer Answer:

Moving out of your primary residence and converting it into a rental can raise questions about how it impacts your mortgage, particularly your interest rate. Many homeowners worry that moving out might trigger an increase in their interest rate or lead to other changes in their mortgage terms.

Understanding Mortgage Terms and Conditions

Before delving into whether your interest rate can increase if you move out of your house, it's essential to understand the terms and conditions of your mortgage note. All the terms of your mortgage can be found in the mortgage note you signed at closing. Those terms can not be altered unless provisions in the agreement say they can change.

What is the Impact of Moving Out on Your Mortgage?

Moving out of your house doesn't inherently trigger changes to your mortgage terms or interest rate. If you have a fixed-rate mortgage, your interest rate remains unchanged throughout the loan term, regardless of changes in occupancy status. Similarly, if you have an adjustable rate mortgage, your interest rate will change only based upon the time-frame and terms set-forth in your mortgage note.

When MIGHT an Interest Rate Change?

The 1% of the time an occupancy change might trigger a negative change to a mortgage is when you received some type of benefit from a first time home buyers program to purchase your home. Some state's first time home buyer programs have requirements that the property be occupied as their primary residence and once it is turned into an investment property, it triggers a repayment clause. For example, Maryland Mortgage and DC Opens Doors require the 2nd mortgages given as down payment assistance to be repaid once the house is no longer the borrower's primary residence. Other programs, the repayment might be the first mortgage.

All the details of repayment will be found in your mortgage note or other closing documents associated with mortgage.

Conclusion

In summary, moving out of your house doesn't automatically lead to an increase in your interest rate. To determine if you have a repayment clause due to occupancy change, consult your mortgage note and other closing documents. If you are still unsure, consult a real estate attorney for further guidance.

Have others questions about mortgages, I am happy to answer them. Reach out to me at teamjd@mainstreethl.com

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This blog is for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.

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