Second Home Mortgage Rates

Compare Second-Home Mortgage Rates

Maybe you’re thinking about buy a second home as a vacation house in a place you really love. Or maybe you’re looking at it from a financial angle, considering it as a way to diversify the assets in your portfolio.

Whatever the case may be, if you’ll need a mortgage to buy that second property, it comes with some specific parameters. Lenders see loans for second homes differently than they do mortgages for primary residences.

That makes it extra important to compare second-home mortgage interest rates and understand what this kind of financing would mean for you long-term.

What is a second-home mortgage?

You use this kind of loan to buy a house that you’re planning to keep in your portfolio and use for yourself at least part of the year (i.e., not an investment or rental property).

If you can tick those boxes, it qualifies you for a second-home mortgage rather than an investment property mortgage. That should make you eligible for better interest rates and less stringent underwriting criteria.

Still, be advised that lenders see second-home mortgages as riskier than loans for primary residences. You have your main house to fall back on, so you might put these mortgage payments at a lower priority.

To offset that added risk, lenders usually charge interest rates that are 0.25–0.75% higher for second-home mortgages. They also often require more to qualify, like:

• A good credit score
• Sufficient income to cover both of your mortgages, as measured by your combined loan-to-value (CLTV) ratio
• A down payment of at least 10% (20% or more isn’t uncommon)

While we’re on the topic, it’s important to differentiate a second-home mortgage from a second mortgage. The former lets you buy a second property. The latter lets you tap the equity in your primary residence through a home equity loan or home equity line of credit (HELOC).

Pros and cons of getting a mortgage for a second home

Before you dive in with financing a second property, weigh out what it would mean for you.

Pros of a second home mortgage

• The second home can provide a comfortable location in a place you visit regularly. And if that’s a spot where hotel and vacation rentals cost a fair bit, it helps to make future vacations feel more affordable.

• Depending on the terms of your second-home mortgage, you might be able to rent out the house part of the year, generating income to offset the mortgage, property taxes, etc.

• Real estate tends to be a good investment, especially if you’re buying in an area with proven property value appreciation.

Cons of a second home mortgage

• These mortgages come with higher interest rates than the rates on mortgages for primary residences.

• You’ll usually need a bigger down payment and a solid financial profile to qualify for a second-home mortgage.

• Getting a second-home mortgage means committing to using the property for your own purposes at least part of the year. That limits the rental income you can generate.

How to compare Second Home Mortgage Rates mortgage rates

If you only take one piece of advice when you’re getting a mortgage, let it be this: compare rates from at least three different lenders. Doing so can save you thousands of dollars over the life of your loan.

To make it easier for you to put the work in here, follow these steps:

Step 1: Understand your borrower profile

First, you want to get a handle on how mortgage lenders are going to see you. If you look like you’re going to be able to repay your home loan fairly easily, they’ll offer you more favorable conditions. If you look high-risk, you’re going to pay more for your mortgage. Specifically, you’ll be charged a higher interest rate.

So, what makes a borrower low- or high-risk? To decide what kind of loan to offer to you (if any), lenders look at a lot of factors. The biggest ones here include:

• Your monthly income — you don’t want an overly large chunk to have to go toward paying your monthly mortgage bill, which lenders measure with your debt-to-income (DTI) ratio
• Your credit score, which essentially tells them how good you’ve been with managing money in the past
• Your loan-to-value (LTV) ratio (higher is riskier) — the price of the house and your down payment size both come into play here

If you’re not in good shape in any of these areas, putting in some work before you buy (e.g., working on your credit score, lowering your DTI ratio) can help you get a lower interest rate.

Step 2: Use rate tables to see what’s on offer today

There are lots of resources online that show you rate offers from leading lenders. Use a mortgage rate table to get a feel for what kind of interest rates are available from financial institutions that provide home loans in your area.

Ideally, that rate table lets you input personal information, like your credit score and the price of the house you want to buy. This way, the rates you get shown should align with what you’re actually eligible to get. A lot of lenders advertise low starting rates, but only the “best” borrowers will be approved for them once they apply.

Step 3: Get preapproved with three lenders

Once you’ve picked out a few lenders that look good to you, go through their preapproval process. That will mean filling out some paperwork, but it’s the best way to figure out what you can really qualify for in terms of loan size and interest rate.

Have financial documents — like your bank statement and pay stubs — handy to make it easier to complete your preapproval applications.

Step 4: Compare preapprovals

When you get preapproved, the lender should give you documentation about your potential mortgage. Ideally, this gives you a feel for the total amount you’re borrowing, the repayment term, the interest rate, fees, and closing costs.

Line up your quotes from each lender and go through them, paying special attention to the annual percentage rate (APR). This tells you how much you’ll pay each year for the loan including not just interest, but also fees. By looking at APRs, you get a clear idea of what you’ll truly pay if you choose that specific mortgage. This helps you identify the best option for yourself and your financial goals.

If you’re ready to start comparing Second Home Mortgage Rates rates, use our rate table to get started. We have fields up top where you can input key details like your credit score range and zip code so we can best tailor the mortgage rate offers to you.