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Wondering if now is the time to invest in your dream tropical vacation home, peaceful cabin in the woods, or big city condo getaway?
Check out the latest trends to see what kind of second home mortgage rate you might get.
What are today's second home mortgage rates?
Because there's more risk to the lender, mortgage rates on second homes are typically slightly higher than mortgages for primary residences.
Average mortgage rates on a fixed 30-year mortgage dropped to 6.34% in January, according to Zillow data. This is a 9-basis-point decrease from December's average. But rates have increased so far this month, and it could be a while before they go back down.
Overall though, mortgage rates are expected to go down in 2024 as inflation cools, which means borrowers who wait until later in the year to get a mortgage may benefit from lower rates.
How current second home mortgage rates compare
See where mortgage rates are at today for some of the most popular loan types and terms. That these rates are for all mortgages, not just ones for second homes.
| Mortgage type | Average rate today |
This information has been provided by Zillow. See more mortgage rates on Zillow
The difference between a primary residence, second home, and investment property
When you buy a house, your mortgage lender will want to know how you plan to use the property.
A primary residence is the place you live for most of the year — it's your home. A second home, on the other hand, is a property that you live in only occasionally, like a vacation home or an apartment in another city you live in part time for work.
An investment property is a property you own that you don't live in. Instead, the home generates income, such as rental income.
Note that it's possible to buy a new home with a primary residence mortgage without selling your existing home, as long as you plan to use the new home as your primary residence. Some people do this so they can rent out their existing home.
Just keep in mind that if you want to convert a primary residence into an investment property, you'll need to clear it with the lender of the mortgage on that property first. It may also be a good idea to talk to a tax advisor, since there may be tax implications that come with changing the occupancy status of your property.
How second home mortgage rates are determined
Mortgage rates are determined by a variety of factors, including current market trends, the level of risk the loan presents to the lender, the location of the home, and the borrower's credit profile.
Lenders typically consider second home mortgages to be riskier because if something happens with the borrower's financial situation, the borrower is more likely to prioritize paying the mortgage on their primary residence than their second home. That's why these mortgages can have slightly higher rates.
But those with good credit scores and higher down payments can still get a good rate on one of these mortgages.
Mortgage rates can also vary quite a bit by state, so if you're buying in an area that's more expensive than where your primary residence is, don't be surprised if you're stuck with a higher rate.
Mortgage rates for second home vs. investment property
While mortgage rates on second homes are typically higher than those on primary residences, investment property mortgages generally have the highest rates of all the three main property types.
Investment property mortgage rates are higher than second home mortgage rates because investment properties pose a larger risk for lenders.
Qualifying for a second home mortgage
The process of qualifying for a second home mortgage is similar to qualifying for a mortgage on a primary residence, though some of the requirements may be slightly different. For example, you'll likely need a down payment of at least 10%. Credit score and debt-to-income ratio (DTI) requirements may also be stricter.
One of the main hurdles to purchasing a second home is being able to afford two mortgages at once. If you're still paying off your primary residence, the lender will include both mortgage payments when calculating your DTI.
"For a second home, unlike a primary residence, buyers will need to qualify for both their primary residence costs and the second home costs," says Duncan Hsia, owner of Infinite Financial, a mortgage brokerage in Hawaii.
Your lender may also require you to have extra cash in the bank that can cover your monthly payments if you lose your source of income.
"For both second homes and investment properties, lenders generally will require reserves, meaning cash in accounts that won't be used for the purchase," Hsia says. "That gives cushion in case things don't go well with the buyers' income. Retirement plans can be used for reserves."
Mortgage Calculator
Use Insider's free mortgage calculator to see how different rates could impact your monthly payment.
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$1,161 Your estimated monthly payment
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Principal paid
$275,520
Interest paid
$42,657
Ways you can save:
- Paying a 25% higher down payment would save you $8,916.08 on interest charges
- Lowering the interest rate by 1% would save you $51,562.03
- Paying an additional $500 each month would reduce the loan length by 146 months
Second home mortgage frequently asked questions
Are mortgage rates higher on second homes?
Mortgage rates are generally a little higher for second home mortgages, but it depends on your lender and the strength of your credit profile. Be sure to shop around with multiple lenders to ensure you get the best rate available to you.
Do you need 20% for a second home mortgage?
Typically, the minimum down payment required for a second home mortgage is 10%. But some lenders may require higher down payments, such as 15% or even 20%.
Why are rates on second homes so high?
Lenders charge higher rates on second home mortgages to compensate for the risk they're taking in making the loan.
Is it harder to get a loan for a second home?
It's generally more difficult to qualify for a second home mortgage than it is for a mortgage on a primary residence. Lenders may require higher down payments, higher credit scores, and lower debt-to-income ratios.
What qualifies as a second home?
A second home is a single-unit property that the owner lives in for a portion of the year. Vacation homes are a common example of a second home. A property won't be considered a second home for mortgage purposes if it is a rental property or timeshare.
It's possible to purchase another property in addition to your primary residence and not have it be considered a "second home" if you move into the new home and use it as your primary residence. In this case, your old primary residence would be converted into a second home or investment property, depending on how you plan to use it.
Mortgage Reporter
Molly Grace is a reporter at Business Insider. She covers mortgage rates, refinance rates, mortgage lender reviews, and homebuying for Personal Finance Insider.Before joining the Insider team, Molly was a blog writer for Rocket Companies, where she wrote educational articles about mortgages, homebuying, and homeownership.You can reach Molly at mgrace@businessinsider.com, or on Twitter @mollythegrace.
Jr Compliance Associate
Elias Shaya is a junior compliance associate on the Personal Finance Insider team based in New York City. Personal Finance Insider is Insider's personal finance section that incorporates affiliate and commerce partnerships into the news, insights, and advice about money that readers already know and love. The compliance team's mission is to provide readers with stories that are fact-checked and current, so they can make informed financial decisions. The team also works to minimize risk for partners by making sure language is clear, precise, and fully compliant with regulatory and partner marketing guidelines that align with the editorial team. Elias is the point person for the loans sub-vertical and works with the editorial team to ensure that all rates and information for personal and student loans are up to date and accurate. He joined Insider in February 2022 as a fellow on the compliance team. Elias has a Bachelor of Science in International Business from the CUNY College of Staten Island. Prior to joining Insider, he volunteered at the New York Presbyterian Hospital, where he worked with the biomedical engineering department. In his spare time, Elias enjoys exploring new restaurants, traveling to visit his family in Lebanon, and spending time with friends.
