Whether you are interested in purchasing a second home for a vacation home, investment property, or somewhere to go for business trips, a second home loan is an excellent mortgage option to consider. At Midland Mortgage Corporation, we are here to give you the scoop on how you can use a second home loan for buying, building, or refinancing.
What Are Second Home Loans?
A loan for a second home means precisely what the name implies: a mortgage to help you finance the purchase of a home when you already have an existing home. Also called second mortgages or a home equity line of credit (HELOC), this loan type allows you to borrow against the value of your current home. Because your home is an asset, over time, the asset gains value, allowing you to use it as collateral without having to sell it. Second home loans are typically available with a fixed interest rate; however, variable rate loans are also available.
How Do Second Home Loans Work?
By design, second home loans allow you to tap into your home’s equity—the market value of the property in relation to any existing loan balances. Home equity can increase or decrease, but in most cases, it grows over time. There are a couple of different types of second home mortgages, including:
- Lump-sum: A one-time loan that gives a lump sum of funding you can use in any way you wish. You pay the loan back over time—typically with fixed payments each month. The payment includes a portion of interest and a part of the loan balance.
- Line of credit: With a line of credit for your second home loan, you will have access to a money pool from which you can draw for any reason. The lender will establish a maximum borrowing amount, and you can leave the money there or draw as many times as you want until you reach the limit. Payback of the loan is similar to a credit card in that you can pay and continue to borrow repeatedly.
Advantages Of Second Home Loans
For homebuyers who have a current home or an existing home loan in good standing, second home loans offer many benefits, including:
- More significant loan amounts—with some lenders you can borrow up to 80% of the value of your current home.
- Lower interest rates because it is secured by your home, reducing risk for the lender.
- Tax benefits: in some cases, you may be able to take a tax deduction for the second mortgage interest you pay. Always check with your tax professional to verify any deductions.
Common Uses Of Second Home Loans
Perhaps you’ve found yourself dreaming of a vacation home in the mountains or the beach, or you would like to create a second stream of income with an investment property. Or maybe you need an extra line of credit for home improvements or other expenses. A second loan home offers a wide range of possibilities for borrowers.
Our counselors at Midland Mortgage have years of experience helping homebuyers like you to take advantage of a second home mortgage to meet specific needs. Connect with us online now to find out if you qualify.