The holidays, although they are a moment of rupture of a good part of our day to day lives, it is also a time when important financial decisions are made. For example, the purchase of vehicles, many of them financed, are especially concentrated in the months before and during the summer. Something similar happens with mortgages for second homes that grow in summer and in this case, in the following months.
And, after enjoying a few days on the beach or in the mountains, there are many who decide to invest in a second home with the aim of being able to enjoy that second home more and for much longer. But to face such an important outlay and distribute it over time, the second home mortgage comes into play
Characteristics of a mortgage for a second residence
The mortgage for second residence, although it is constituted the same as when it is for habitual residence, has different characteristics that are determined both from the point of view of demand, the supply of financial institutions and the risk of this type of operations:
Their demand is lower, since the population group they are targeting is much smaller than that looking for a regular home.
The financial effort may be more important if the applicant still has pending payments for the purchase of their habitual residence.
Many of the second-home areas, especially on the coasts, tend to have less stable prices, rise more rapidly in good times and fall sharply when the opposite occurs. All of this carries a greater risk.
These points, smaller market and more risk, determine those different characteristics that second home mortgages have compared to the one that finances the habitual residence:
The higher interest rates, which are reflected in the more expensive fixed rate loans and in higher spreads in the variables.
Maximum amount to finance lower. If the average percentage in the first home is 80%, in mortgages for the second residence it is reduced to 50-70%.
Shorter terms. The same as in the previous case, if the most usual average term for a first home mortgage is between 25 to 30 years, in the case of the second it is reduced to below 20 years.
High financial effort as a result of higher rates and shorter terms means that, although the price of the house is lower than a habitual residence in a big city, the financial effort is high. To this must be added that they have to contribute more money to pay the percentage of the value of the sale that is not financed with the mortgage.
What to take into account when contracting a mortgage for a second residence
With these premises, the client a priori finds himself with limited and more expensive financing, which makes it more important to find the cheapest alternatives, although each alternative has points for and against. Also, it will depend on your current situation:
If you have finished paying your mortgage for your habitual residence or you do not have:
You can apply for a secured mortgage on the second home you are going to buy.
You can choose to offer as collateral paid residence. In this case, you can get better conditions, but in exchange for offering the home in which you reside as a guarantee again, thus assuming a higher risk in the event of default than if you do so with the second home.
If you do not finish paying your first residence:
Apply for the second home mortgage, taking into account the characteristics that we have indicated and that is made more complex by the ceiling of loan expenses with respect to income, which as a general rule should not exceed a third of the total.
You can extend your current mortgage, but in this case the financing limit is set by the value of the habitual residence and the amount pending amortisation and not the value of the house you are going to buy.
All this must be transferred when looking for a mortgage for a second residence in which you have to analyse the offer very well, look for the most beneficial option and negotiate to get the best conditions. Thus, for example, not having an amortisation commission, partial or total, is even more important to be able to anticipate payments when financial circumstances change.
Bank-owned home mortgages also come into play. Financial entities that still have a significant stock of vacation homes “play in their favour” by offering better conditions for their properties in a segment that, as we have seen, is more expensive to finance.
All these factors must be analysed to get the second home at the best price and with a second home mortgage with the most beneficial conditions.