Second Mortgage
People often consider second mortgages to buy a 2nd home or vacation home. The second mortgage business is a big one, because more people are considering and acquiring them than ever before.
If you are considering a second mortgage, there are a few things you need to know. The first is that lenders are much more strict on loaning cash the 2nd time around than they are for first home loans.
Also, interest rates on second mortgages can be as much as 1/4 to 1/2 point higher than 1st mortgages. However, there are some clever ways to finance your vacation residence.
One way to get that 2nd house is to get a home equity loan or home equity line of credit on your first home. You can use this to finance part or even all of your second home. However, you should be advised that home equity rates can be significantly higher (1-2 points) than the prime rate. This can mean that you'll end up paying much more in the long run than you would have if you'd just taken a second mortgage on the whole amount!
There are also better tax advantages on second mortgages than on home equity loans. Currently, the IRS will let you deduct interest on up to $1 million in total debt on 1st and 2nd homes, and only $100,000 on home equity loans. So, these factors will also play a significant role in your decision on what type of loan to get.
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