Second Mortgage Homes: All You Need To Know
If you have forever been thinking of getting a vacation cottage to spend summertime away from the hustle-bustle of the city or just a place to work out of, then buying a second home is a great idea. You may even think of buying a second home if you want to make room for an additional member of the family or if you are looking to downsize from a large house to a smaller one. Let us take you through the process of buying a second home.
Assess your finances
Any purchase starts with evaluating finances so you must take some time out and have a deep look at your financial situation. You should also assess your budget or how much you can afford to borrow. There are multiple budget calculators available online to help you know what your mortgage payments would look like and how you could possibly save money.
To buy a second home/vacation cottage you either apply for a new loan which would be secured by the second home. You could alternatively refinance your current mortgage loan and access equity of your primary home which would be by now of an increased value in all probability. By refinancing it you'd have extra funds for making a down payment of the second home. Refinancing in the current Covid-19 situation means you would have access to lower interest rates and maybe even better terms of the mortgage. Though some people opt to refinance with the aim of converting their variable mortgage to a fixed mortgage.
If you choose to take a home equity line of credit (which is up to 65% of the property value), you would have to pay interest on the entire sum and insurance premium every month but you can pay back the principal amount as it suits you. But to access a home equity line of credit you would need to have 20% of the equity built up in your property along with good credit.
Mortgage loan: If you are buying your second home with the intention of using it all year round you can get it financed to the tune of 95% of its value. If instead, you plan to use it occasionally like a vacation cottage you can get it financed to the tune of 90% of its value. You have the option to choose between the fixed or variable rates for second-home mortgages with an amortization period that can be up to 25 years. It is crucial that you take the line of credit insurance for the safety of your investment in case of any disability or illness or death. This can be done irrespective of the rate (fixed or variable) you choose for your mortgage loan.
Some of the costs that you will have to bear towards your second home would be similar to your primary home including those towards valuation fees, legal fees, and a title search.
If you looking at investing in a second house and are ready to step into the next phase in homeownership, you must contact LendX.