Find out about second home loans and how they can be applied for.
What is a second home loan?
September 6th, 2010
A second home loan is a loan or mortgage secured upon a property where the buyer already has a main home. There are two main types of second homes, holiday homes and rental properties.
Lenders tend to be less understanding with second home loans. With the primary residence, the home owner is likely to treat the mortgage payments as a type of rent, prioritising this over other calls on his or her income, because falling behind on the mortgage could mean losing the family home. However, when the loan is for a second property this driving necessity isn’t always there, as the home owner will only lose an income source or a pleasant place to spend holidays rather than a main residence.
Second home loans tend to demand higher deposits than primary mortgages due to this higher likelihood toward default. Having a sizeable deposit at stake means the second home buyer is less likely to default and if they do, the lender will find it easier to recover the money.
Sometimes a second home lender will ask for security on the main residence instead of a deposit, particularly if there is a large amount of equity accumulated. This means that both the main home and the second home could be lost if the home owner does not keep up with both mortgage payments.
A loan to buy an investment property such as a rental house can be different. In such a case, the lender will often be a specialist investment property lender and will tend to consider the income to be secured from the property. The rental cover, which is the difference between the property’s rental price and the mortgage repayments, can become a crucial measure to the home loan lender.
Investment lenders can also increase the deposit on the loan should house prices fall, something that is informally known as a “margin call.” This is quite rare, but does sometimes occur.
Many home loans will not permit the house to be rented out. If it is, the home owner will have breached their home loan conditions.
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Buying a holiday home, Using Mortgages to finance investments, Holiday home mortgages, What is the difference between rent and a home loan?, Home Loan Deposit BondsTags: Mortgage Brokers, second mortgages
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