A combined owner-occupied and rental home allows you to secure both a residence and rental income at the same time. It has drawn attention because it may allow you to use a low-interest home mortgage. In this article, we explain the conditions for obtaining a home mortgage for a combined rental home and three key points to watch when using full financing.
What Is a Combined Rental Home and Why Is It Attracting Attention?
A combined rental home is a property that includes both an owner-occupied area and a rental area. Because the owner can earn rental income from the leased portion, that income can be used toward monthly loan repayments. It also offers flexibility, allowing the property’s use to change as lifestyle needs evolve.
What Are the Conditions for Getting a Home Mortgage?
Even for a combined rental home, construction with financing is possible. However, whether a home mortgage or an apartment loan applies depends on how the property is configured.
A Home Mortgage Can Be Used if the Living Area Is 50% or More
One condition for a home mortgage is that at least 50% of the total floor area must be used as the owner’s living space. For example, in a three-story building, a low-interest home mortgage may be available if the first and second floors are used as the residential portion.
If It Is 50% or Less, an Apartment Loan Applies
If the living area is 50% or less, the property is generally viewed as having stronger income-generating characteristics, and only an apartment loan will apply. The interest rate is higher, but the larger rental area can also support higher rental income.
Three Points to Watch When Using a Full Home Mortgage
Point 1: Your Choice of Home Builders Becomes More Limited
Depending on the financial institution, financing may be available only if you use a designated home builder. It is advisable to consult a home builder first and then identify the financial institutions that can offer a home mortgage for the project.
Point 2: Your Health Condition Affects the Screening Process
In many cases, enrollment in group credit life insurance is required, and if your health condition is judged unfavorably, the home mortgage may not be approved. Your age at the time of application also affects the review, so an earlier contract is generally preferable.
Point 3: Vacancy Risk Can Increase Your Repayment Burden
If you cannot secure tenants and the vacancy period becomes prolonged, your rental income may fall to zero, requiring you to make monthly repayments from your own funds. You should therefore consider carefully whether the area is likely to maintain strong demand even decades from now.
Frequently Asked Questions (FAQ)
Q. What interest rate applies to a home mortgage for a combined rental home?
The same interest rates as a standard home mortgage generally apply. As a rough guide, variable rates are around 0.3% to 0.7%, while fixed rates are around 1% to 2%.
Q. Is a combined rental home eligible for the home mortgage tax deduction?
If the owner-occupied portion is 50% or more, the property is eligible for the home mortgage tax deduction. However, the deductible amount is based on the loan amount corresponding to the owner-occupied portion.
Q. Can the entire property be converted to rental use in the future?
Yes, but doing so may violate the terms of the home mortgage contract. You should confirm this with your financial institution in advance.
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