The Best Way to Borrow Money for a Second Home

Written by daniel westlake | 13/05/2017

The best way to borrow money to buy a second home is to use the equity that you have gained on your first home against what you will be borrowing. It's important to know how this works and what the risks and benefits are to using this technique before actually doing it, however.

The Way it Works

If you have a substantial amount of equity on your current home or have a low mortgage balance, then you can borrow money by this method. Once you have proven this to the lender of your choice, then you will fill out an application and they will check your credit to ensure that you can make regular payments on what you are borrowing. Next an appraisal will be done on your house to ensure that it is worth what you are trying to borrow against it. If this all checks out you will be given your money for the second home.

Benefits

The best thing about using this method to buy a second home or vacation house is that you will be able to buy it free and clear and just have to deal with paying off the lender, rather then having it secured with a loan. You will also be able to get a cash price on the home and many sellers will give you a much better cash price on a home then one you will be paying off over an extended period of time. This will actually save you money in the long run. You will also keep yourself from having two mortgages, so you will be able to concentrate on paying off your lender and what little remains on your existing house.

Risks

There are always risks in these types of financial strategies, the main one of these being that it puts your primary residence at risk if you can't pay off your home equity loans. Although they will not take your vacation house away, they can take your primary residence if you don't make payments. There is also a concern of overextension by doing this, as debt can add up quickly and you will have more bills, taxes and insurance costs.

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