How to Compare Rates for a Mortgage on a First and a Second Home

You'll pay a higher interest rate when financing a second mortgage for a vacation home.

Don't be surprised if the mortgage interest rate on the home loan you use to finance a second or vacation home is higher than the rate you secured when financing your first, or primary, residence. The truth is, mortgage lenders almost always charge borrowers higher interest rates when they are financing a second home. Buyers need to keep this fact in mind when they compare the interest rates on their first and second home mortgage loans.

Difficulty:

Moderate

Instructions

1. Expect to pay a higher interest rate when taking out a home loan for a vacation home. The reason for this is simple: Your finances are tighter when you buy a second home. You already have one mortgage loan; adding another will put an extra strain on your finances. Mortgage lenders understand this. Therefore, they charge you a higher rate to compensate for the increased risk they are taking on.

2. Shop around for the best interest rate, even when you are applying for a mortgage loan for a second home. These rates can vary significantly from lender to lender. Remember, you don't have to work with the lending company that holds the mortgage loan on your primary residence. Neither do you have to work with a lender based in the state of your second home sits.

3. You're not obligated to, but it's not a bad idea to check with the lender who holds your primary mortgage first. Ask your mortgage lender for a discounted interest rate on a second loan. Some lenders provide lower rates to consumers who take more more than one loan with them.

4. Take a long look at the interest rate on your primary home mortgage loan. When you took out the loan, was that interest rate considered low? If so, you are probably a good credit risk. This means --- though anyone's financial situation can change --- that you should qualify for a lower interest rate on your vacation home, too. Just don't expect the rate to be as low as the best rates lenders are offering to borrowers for primary residence mortagages.

5. Step away from the real estate deal if you're not comfortable with the rate a lender is offering you to finance a vacation home. You can always find another lender if you think you are being charged an interest rate that's too high.

References

• SmartMoney.com: Getting a Loan for Your Second Home
• Bankrate.com: Mortgage Options Vary
• Bank of America: Choosing The Right Mortgage For Your Vacation Home