When it comes to refinancing, people take advantage of lower rates for all sorts of reasons. One of the most popular reasons is to fund a vacation, or second home. This can be done in several different ways: a new mortgage, a refinance/combo loan, or a home equity loan.
Taking out an additional mortgage for a second home is tough. Requirements for credit and payment history are stricter and you can get penalized for having two mortgages, since you're a higher credit risk. However, many people choose to simply combine their first mortgage with their second one for a streamlined loan process. If you can get a better rate with a combo, go for it. This can be an excellent way to add the benefits of a lower rate without feeling the pinch of the second mortgage on its own.
Another popular way to fund a second home is to take out a home equity loan on your first home to fund all or part of your vacation haven. This is a little risky if you don't have the cash to cover the rest of the cost of the home. If you do, it's a great option. Simply secure your home equity loan with the principal built up in your first home and write the check for the balance on your second.
Alternately, you can use the home equity loan as the down payment on the second home. Then you can secure a mortgage for the balance at a later date. Act wisely here, though, as the IRS only gives you 90 days to fund a mortgage on a second home if you want to deduct the taxes. This is the kind of advice we like to offer our customers at Downs Financial, Inc. We want to keep you educated so you can make the best possible decision.