Buying a Second Home? What You Need to Know About Mortgage Rates
Owning an Anchorage AK home can be a great feeling, but for people who travel frequently to a certain location or who often take vacations in a favorite spot, some individuals may consider owning a second home, as well. If paying cash for that second home is not an option, then it's time to get a mortgage to make the dreams of owning a second home come true. But before a buyer heads out to the bank or starts applying for a loan online, there are important things to understand about taking out a mortgage on a home that isn't a primary residence. One of the most important considerations is the mortgage rate.
How Much is the Second Home Mortgage Rate?
Rates for mortgages on second homes vary. When rates are low overall these rates may be close to the rates for first homes. As interest rates rise, though, the discrepancy between rates for first and second homes can sometimes grow larger. That is important to be aware of, since it's better to buy any home where a mortgage is needed when the interest rates are as low as possible. That reduces the possibility that you will end up paying too much in interest simply because of the time the home was purchased. Waiting and tracking interest rates can help.
Why Are Mortgage Rates Different for Second Homes?
Mortgage rates for second homes are different primarily because of risk. If you have a mortgage on a first home and get another one on a second home or condominium in Anchorage, your debt-to-income ratio is higher and there is a greater likelihood of default. Banks help reduce that risk to themselves by raising the interest rate slightly so they bring in a better return on their investment in helping consumers purchase homes. Another risk for the bank is that the buyer isn't living in the home all the time, which puts the property at greater risk for fire, vandalism, and other problems when it's unattended.
What to Know About Making a Down Payment on a Second Home
The down payment on a second home is usually expected to be much larger than the down payment on a primary residence. Whereas the down payment on a primary residence can be as low as 3.5%, the down payment with an FHA loan, the down payment on a second home is usually required to be at least 10% or 20%.
In addition, the bigger the down payment, the lower the mortgage interest rates. Second home buyers who want to make their purchase as affordable as possible can make this happen by making a large down payment up front.
While second home buyers have the option of making their down payment with cash on hand, some find that it is wiser to take out a home equity line of credit (HELOC) to make their down payment. Provided that they have equity in their home, this is an excellent way for the home buyer to keep cash on hand for the remodeling, moving and home maintenance.
What Can You Do to Get a Lower Rate?
Getting a rate that's the same as the rate for a first home probably isn't possible, but there are still things that can be done in order to get a lower rate on your Alaska log home for sale. One of those is to watch the rates carefully and buy when interest rates have dipped as low as experts believe they will go. Another way to get a good rate is to have excellent credit and a good down payment. The more risk a bank takes to give out a loan, the higher they are going to want the interest rate to be to compensate for some of that risk. Buyers with great credit and plenty of money down involve less risk, and that translates to lower interest rates.
Is Paying Cash a Better Choice?
Not everyone can pay cash for a second home, but it can be a better choice for some people. If the cash is available and won't cause a hardship, a mortgage and its resulting interest rate can be avoided. If that money has to be pulled from investments, though, be sure to compare the interest it's earning against the interest that will be saved by not having a mortgage. Paying cash isn't always the right way to buy a second home even if that money can be pulled together. In some cases, it's best to have a mortgage and pay the interest, so money earning interest in investments can remain where it is.