There are various reasons why you might want a second mortgage, including buying a holiday home or helping a relative own a property. Most importantly, you should ensure that your second home is affordable, or the loan repayment will drain you out within no time. Here is a detailed look into second mortgages and how they work.
What is a second mortgage?
Typically, you take a second mortgage to purchase a second home when you already own one property. For instance, you want to buy a vacation home, or your work is away from your primary residence and want a second home to stay in while working. Your reason for taking the second mortgage determines the type of mortgage you should look for.
Types of mortgage you can take for your second home
A residential mortgage
If you wish to live in your second home or want to help a relative own home, taking a residential mortgage is an ideal option. But note that you will need permission from your lender if you take a second mortgage and decide to let out the property, and you may have to pay an administration fee. Some lenders do not allow it, so it is advisable to compare second home mortgage lenders beforehand if that is what you intend to do.
Buy to let mortgage
If you intend to buy a second home and rent it out, you should take a buy-to-let mortgage. However, it comes at a higher rate, and you may have to put up a 25% deposit. The best part is that buy to let mortgages are often interest-only mortgages, so the repayment may be more affordable.
Holiday home mortgage
If you want to buy a second property for use as a holiday home, you should take a holiday home second mortgage. You may also need permission from your lender to let on Airbnb.
What about buying a second home as an investment?
Some people buy second homes to do up and sell for some quick profits. You have these options for a second mortgage
Toronto if you intend to do that.
A bridging loan
This one covers the cost of a project such as a home improvement. You can secure a bridging loan against a property that doesn’t qualify for a secured mortgage; for instance, it doesn’t have a bathroom. The loan can cover the costs of installing the bathroom, and then you can sell the property for a profit.
Development loans are ideal when you want to buy a second home to completely renovate and sell for profits. It comes with high-interest rates, and you will be required to present your plan to the lender, who will then release the funds at various stages of the renovation. Also, you will be required to foot 30% of the renovation costs.
The final words
The only way to access the best rates for a second home mortgage is to compare many lenders. Note that your lender will be interested in knowing why you are buying a second home and will only lend the money if they see a clear benefit.