Vacation Home Mortgage: Financing the Home of Your Dreams
A recent study conducted by the National Association of Realtors showed that the number of vacation homes in the United States is at around seven million. This is a substantial increase from the previous decade recorded by the association. It is estimated that more than 30 million Americans will purchase a vacation home within the next decade.
As the demand and interest in popular vacation spots grow, prospective buyers should familiarize themselves with vacation home mortgage loans. You should also know something about mortgage rates and their corresponding payment options. What follows is a discussion f the critical elements of a vacation home mortgage.
Vacation Home Mortgage Loans:
Recently, property values in the United States are rising based on the mortgage calculator. Moreover, mortgage interest rates are close to a 40-tear low. With these two concepts in place, applying for a vacation home mortgage loan is a sound strategy.
“In the current market, buyers will sometimes have to make a 10 to 20 percent mortgage down payment for a vacation home loan. Plus, some lenders only require a 5% down payment. This is a change of 5 from 10 years ago.”, states Dough Perry, the Senior Vice-President at Countrywide Home Loans, one of the nation’s largest lenders.
These days, a buyer can obtain a very attractive vacation home loan from stock brokerage firms. For instance, clients of Merrill Lynch can acquire loans with no down payment. If the buyer has had an adequate stock portfolio, the entire purchase price of the property can be financed by a Merrill Lynch vacation home mortgage.
Another option available is for buyers interested in a vacation home mortgage to:
- Avail of an interest-only loan
- Opt for a “pay option” with an adjustable-rate mortgage
With the first option, a buyer makes smaller interest-only payments for a fixed period of years. After, you will then pay both the principal and interest in larger payments. On the other hand, the second option, you will choose from a number of payment methods for each month.
If the property values continue to rise and you are looking into buying a vacation home, you should consider loans like interest-only and pay-option ARMs. However, if housing prices fall or if you plan on always making the lowest payment, you might end up owing more on a house than what you paid for under a many pay-option ARM format. Interest-only borrowers, such as purchasers of primary residences, sometimes encounter difficulties when having to start payments ar a higher combined mortgage payment of interest and principal.
If you rent out a property, you may face a higher down payment since this will further raise the risk for the lender. In order to get a better deal on vacation home mortgages, you should keep an eye on states such as Colorado, Arizona, California, and Hawaii. These states are where second-home purchases are common meaning; lenders in those states are acquainted with the specifics of vacation home mortgages. Moreover, they also face competition from other montage brokers and banks for their respective market share.
Vacation Home Mortgage Rates:
Because risk is passed to borrowers, vacation home mortgage rates are nearly ¼ to 1/23 of a point higher than rates on a primary-residence mortgage. Nevertheless, a vacation home could provide you with tax advantages.
The homeowners can deduct the interest paid on two houses and the interest on and debts secured by one or both of the properties. More specifically, if the total mortgage balance of the principal and second home does not exceed $1 million, plus up to $100,000 of home equity indebtedness, you can fully deduct the mortgage interest. The IRS’s definition of a house is considerably liberal.
Before getting a vacation home mortgage, you should carefully study the mortgage options available to you. Look carefully at the vacation home mortgage rates and the vacation home mortgage loan. With this, you should then determine how much you can afford to pay on a certain basis. Doing such checks will ensure that you get the keys to the home of your dreams.