Articles: Getting a second home mortgage: what are your options? SB May 2007

There are all sorts of reasons for buying a second home.  The potential has never been more exciting.

If you have decided to go down this route, your first decision is how you are going to finance your purchase.  Unless you have large cash reserves or property resources at your disposal, you are going to need a second home mortgage. 

Your first step should be to consult a good independent mortgage broker, who will help you to be clear about what your options are. 

As you look at ways of obtaining a second home mortgage, one option is to remortgage your existing property.  This is the most straightforward option.  Your lender will need to be satisfied that your property has increased in value since you took out your first mortgage – or at least that there is a good prospect of it doing so.  You will also need to show that you are able to make the bigger payments.  Then, having bought the second property, you still only have one monthly payment to make.  (Of course, if you can get a better deal from another lender, you don’t have to stick with the same lender, though obviously it is simpler if you do.)
 

If this option isn’t available to you for your second home mortgage, you will need to look for a loan on the property itself.  This means of course that you will need to have the property valued.  You can obtain a mortgage on your second property even if you don’t have one on your first home.
 

If you do decide to go for a second home mortgage, you then have to decide whether it should be a capital repayment mortgage or an interest only mortgage.   You may have already considered the pros and cons of each of these in relation to your first mortgage, but for a second home mortgage they are slightly different.  Which you choose largely depends on what you are looking for in your second home.
 

If you are looking at your second home mortgage primarily as a savings plan, you will want to get as much of the mortgage paid off as possible, as soon as possible.  So a capital repayment mortgage will suit you better.  But of course you need to be sure you have the resources to make substantial monthly payments, especially if you have a mortgage on your first home as well.
 

If your ability to make payments is more limited, or if you plan to sell the second home at a later date (for example, if it was bought as accommodation for a son or daughter at university), you will probably be better off with an interest-only mortgage, whereby you repay the capital on sale.  If the property has increased in value, you will still make a profit.  And of course you have had the enjoyment of the property in the meantime.

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