Articles:
Second home mortgage: the need to be flexible
SB May 2007
Demand for second homes has never been higher.
Whether for a holiday home, a pad in town or
accommodating a student son or daughter, more
and more people are looking for that second
property. However, as prices rise, more and
more people are wondering what is the best way
to
arrange a second home mortgage.
In fact, if you are
looking for a second home mortgage, you
shouldn’t panic too much. As demand rises,
there are an increasing number of options
available. The best advice is – be flexible.
Look at everything that’s out there and don’t be
tied to one or two traditional alternatives.
For example, nowadays it is increasingly
possible to obtain a second home mortgage on
similar terms to that on your first home, rather
than having all sorts of special conditions
imposed. You can also remortgage your first
home to raise the funds for your second property
– your lender will just need to know that you
have an income that is sufficient to support
both mortgages.
However, as an alternative to either of these,
it is increasingly becoming possible to split
the borrowing between the two properties. So
you don’t have to raise all the second home
mortgage on one property
So what are the pros and cons of this?
If you raise the total second home mortgage on
one property, it will be cheaper in terms of
fees. But, on the other hand, if this pushes
the total loan to over 75 per cent of the
valuation or purchase price, it will incur
higher interest rates and lending fees. So the
savings of avoiding duplication would be
cancelled out.
“Splitting” can have advantages if you hope to
let out the second property for part of the year
– even if it is primarily for your own use. You
can set the interest charges on that part of the
second home mortgage against the income from
renting it out, for tax purposes. But make sure
you speak to the lender or a broker first, to
check that letting is allowed under the terms of
the loan.
Finally, another advantage of splitting is that
it enables you to make use of both repayment and
interest-only mortgages. Your mortgage on your
main home is likely to be a repayment
mortgages. However, your second home mortgage
is much more likely to be an interest-only
mortgage. This keeps payments lower, and you
have more options for repaying the capital.
These days there are plenty of options for your
second home mortgage. Talk to your
second home mortgage broker to find out what
is best for you.
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