Current Second Home Mortgage Rates

Sep 18, 2023

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Wondering if now is the time to invest in your dream tropical vacation home, peaceful cabin in the woods, or big city condo getaway?

Check out the latest trends to see what kind of second home mortgage rate you might get.

Because there's more risk to the lender, mortgage rates on second homes are typically slightly higher than mortgages for primary residences.

Average 30-year fixed mortgage rates increased last month, and they've been spiking in recent weeks.

But rates are expected to fall as inflation cools, which means borrowers who lock their rate later this year may be able to get a better deal on a loan.

See where mortgage rates are at today for some of the most popular loan types and terms. That these rates are for all mortgages, not just ones for second homes.

When you buy a house, your mortgage lender will want to know how you plan to use the property.

A primary residence is the place you live for most of the year — it's your home. A second home, on the other hand, is a property that you live in only occasionally, like a vacation home or an apartment in another city you live in part time for work.

An investment property is a property you own that you don't live in. Instead, the home generates income, such as rental income.

Note that it's possible to buy a new home with a primary residence mortgage without selling your existing home, as long as you plan to use the new home as your primary residence. Some people do this so they can rent out their existing home.

Just keep in mind that if you want to convert a primary residence into an investment property, you'll need to clear it with the lender of the mortgage on that property first. It may also be a good idea to talk to a tax advisor, since there may be tax implications that come with changing the occupancy status of your property.

Mortgage rates are determined by a variety of factors, including current market trends, the level of risk the loan presents to the lender, the location of the home, and the borrower's credit profile.

Lenders typically consider second home mortgages to be riskier because if something happens with the borrower's financial situation, the borrower is more likely to prioritize paying the mortgage on their primary residence than their second home. That's why these mortgages can have slightly higher rates.

But those with good credit scores and higher down payments can still get a good rate on one of these mortgages.

Mortgage rates can also vary quite a bit by state, so if you're buying in an area that's more expensive than where your primary residence is, don't be surprised if you're stuck with a higher rate.

While mortgage rates on second homes are typically higher than those on primary residences, investment property mortgages generally have the highest rates of all the three main property types.

Investment property mortgage rates are higher than second home mortgage rates because investment properties pose a larger risk for lenders.

The process of qualifying for a second home mortgage is similar to qualifying for a mortgage on a primary residence, though some of the requirements may be slightly different. For example, you'll likely need a down payment of at least 10%. Credit score and debt-to-income ratio (DTI) requirements may also be stricter.

One of the main hurdles to purchasing a second home is being able to afford two mortgages at once. If you're still paying off your primary residence, the lender will include both mortgage payments when calculating your DTI.

"For a second home, unlike a primary residence, buyers will need to qualify for both their primary residence costs and the second home costs," says Duncan Hsia, owner of Infinite Financial, a mortgage brokerage in Hawaii.

Your lender may also require you to have extra cash in the bank that can cover your monthly payments if you lose your source of income.

"For both second homes and investment properties, lenders generally will require reserves, meaning cash in accounts that won't be used for the purchase," Hsia says. "That gives cushion in case things don't go well with the buyers' income. Retirement plans can be used for reserves."

Use Insider's free mortgage calculator to see how different rates could impact your monthly payment.

Mortgage rates are generally a little higher for second home mortgages, but it depends on your lender and the strength of your credit profile. Be sure to shop around with multiple lenders to ensure you get the best rate available to you.

Typically, the minimum down payment required for a second home mortgage is 10%. But some lenders may require higher down payments, such as 15% or even 20%.

Lenders charge higher rates on second home mortgages to compensate for the risk they're taking in making the loan.

It's generally more difficult to qualify for a second home mortgage than it is for a mortgage on a primary residence. Lenders may require higher down payments, higher credit scores, and lower debt-to-income ratios.

A second home is a single-unit property that the owner lives in for a portion of the year. Vacation homes are a common example of a second home. A property won't be considered a second home for mortgage purposes if it is a rental property or timeshare.

It's possible to purchase another property in addition to your primary residence and not have it be considered a "second home" if you move into the new home and use it as your primary residence. In this case, your old primary residence would be converted into a second home or investment property, depending on how you plan to use it.

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Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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