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Everything you need to know about mortgages for second homes

Posted by Michel B. on 24/08/2019

You have it clear. You have found the house of your dreams and you don’t want to let it escape. It is the perfect opportunity. To be able to enjoy it during the holidays, on weekends or a bridge. Ideal to disconnect a few days in solitude or with the family. Or to make a getaway with your friends for a weekend.

But, of course, it costs money and not enough savings are always available to meet this expense. It is the moment in which you have to resort to financing.

When a mortgage is requested for a second residence, the application and approval procedure are the same as for a first home. On the other hand, the conditions and requirements demanded by the entity do not match. In this sense they are more strict.

Getting a second mortgage is more complicated than asking for a first home. One of the reasons is that the bank understands that the risk of default is greater. Before a time of economic trouble, the priority of payment will always be the usual home. Another is that, in many occasions, the location of these houses makes the sale difficult.

Less financing
If for a first mortgage the financing granted by the bank usually reaches 80% of the appraised value of the home, in the case of the second mortgage the percentage of maximum financing is lower. The bank will lend between 60% and 75% of the appraisal value. Thus, we will need a greater volume of savings to deal with the purchase.

Higher income
Apart from having more savings, to opt for the granting of a second mortgage, the most common is for the bank to ask the owners for a higher income. And, in addition, to have a stable job and some time of antiquity.

Ideally, you have just paid the first mortgage or that there are few fees left to finalize the repayment. It is also important that the level of indebtedness be the minimum possible, if not, the entity may consider our profile to be risky, and not grant us financing.

Deadlines are reduced
Another point to consider is the repayment term. Just as for the first mortgages they are up to 30 years, and sometimes up to 40 years, in the second mortgages they are usually smaller. They barely reach 20 or 25 years maximum.

Raise interest
Some entities may apply a higher interest rate, whether at a fixed, variable or mixed rate for this type of mortgage. You can also request some type of bonding. However, the most common are similar to those of the first homes: direct debit of payroll, hiring home and life insurance …

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