Always dreamed of owning a getaway cabin in the mountains or maybe a seaside cottage where you can go to escape the rigors of everyday life and escape the normal routine of your hectic days? Maybe it is time that you thought of buying a vacation getaway home.
Buying a second home does not have to be a pipe dream. Make it a reality with a 2nd home mortgage.
Applying for and getting a mortgage for a second home can be a fairly easy process; especially if you have an excellent credit rating and have the income necessary to make those payments.
Of course, the rates and terms can differ dramatically depending on your situation and the amount to be financed. A quick interest search on 2nd home mortgage rates can show you how much these loan rates can vary. So, what can make one loan carry a smaller rate than a first mortgage and another (similar) loan carry a much larger 2nd home mortgage rate? Here are some of the things a lender will consider when quoting you a 2nd home mortgage rate:
The Type of Property You Are Buying
If you are planning to use your second home solely for your own enjoyment, you may be offered a slightly higher interest rate than someone who plans to rent their property when it is not in use. The reason for the rate difference is simply the risk involved for the lender. A property that doubles as an income producer carries less risk than one that is being used primarily for personal use.
The Amount Being Borrowed
Generally speaking, the larger the loan, the more you will pay in interest. Now, I am not talking about a small 20,000 or 30,000 difference here. But a $45,000 rustic cabin in the woods may carry a smaller interest rate than a $500,000 luxury oceanfront condo will. The reasons again is all about risk. The lower the risk for the lender, the better rate deal you can negotiate.
The Equity in the Property
Have a down payment or found a real steal in a second home property? You may benefit with a lower interest rate. If you are only going to borrow 50-70% of the properties market value the odds are good you can shave a quarter or half percent off of that APR.
Your Debt Ratio
Another factor that comes into play when a lender sets your interest rate is your debt ratio. If buying a vacation home is going to unbalance that debt to income ratio, you may be required to pay a higher 2nd mortgage interest rate on the loan. Ask your loan officer what ratios are considered acceptable when applying for a second home mortgage. If your ratios are off a bit, take a few months to pay down some of your debt or save more of a down payment on that vacation home (so you can borrow less money) to give you the best rate advantage.
Your Personal Credit Rating
As is the case when borrowing money for anything, obtaining a second mortgage will require a complete and thorough credit check. Should your FICO score falls under a certain level, your interest rate may be increased. Those with the highest credit scores are offered the absolute lowest interest available. When determining the health of your credit score be sure to look at all three reporting agency reports and deal with any inconsistencies before applying for your second home mortgage.
The Length of the Loan
How long will it take you to pay back the mortgage on your second home? The shorter the loan term, the lower the interest rate. Most lenders like to see second home mortgages to run about 15 years. This of course will give you higher payments each month, but will get you out from underneath that debt quicker. Warning: a very short loan (maybe for only 5-7 years) may result in higher interest though, since the lender doe need to make a certain amount of money on the loan to make it a viable investment on their part. Finding a loan term that meets their specific terms can be a bit tricky and should be discussed with your loan officer in order to get the absolute best rate.
Buying a second home is a big investment that usually requires some sort of mortgage loan help. In order to negotiate the absolute best deal for your loan, be sure to compare 2nd home mortgage rates online using one of several calculators available for free to consumers. Of course it is important to look at more than APR rtes when choosing a loan. Also keep in mind the closing costs term and other variables to ensure that the loan you choose is indeed the best one for your financial future.