Posted: 1 Feb '22

Can I Use the Equity in My Home to Purchase a Vacation Home or Rental Property?

Can I Use the Equity in My Home to Purchase a Vacation Home or Rental Property?

Using the equity you have in your home is a great way to purchase a second property. You can use the equity in your home as a down payment. Using your home equity as a down payment for a second mortgage will cost you less in the long run than taking money out of a retirement account. Call us today to discuss your options.

How Does Using my Home Equity Work for Second Mortgages?

Suppose you are dreaming about that vacation cottage or are thinking about purchasing some rental property. In that case, you may have plenty for a hefty down payment in the equity you hold in your home. For example, you currently hold $150,000 of your home. Some lenders will give you up to 75% of the equity you have in your home. That means, if you are looking to purchase a vacation cottage for $200,000, you can borrow against your home and have $112,500 to put down on the home. That would leave you with an $87,500 second mortgage, making it possible to negotiate lower rates and shorter loan terms. You may also be able to negotiate a blanket mortgage that will cover the amount you owe on both properties.

If you have enough equity to pay the entire balance of the second home, then you won't need to carry a second mortgage at all. You will have just refinanced your home to buy a second property, with no down payment required.

Benefits of Using Equity for Second Mortgages

The primary benefit to using your home equity is that a home equity loan will come with a smaller price tag than other types of loans. In other words, a home equity-related loan will have lower interest rates, meaning that you end up paying less for the loan.

Cons of Using Your Home Equity

The primary con of refinancing and using money to purchase another property is that home values will not always go up. Real estate is a market like anything else, and prices can rise and fall. As a result, the value of your properties could fall and leave you underwater in mortgage debt. This is certainly something to consider if you plan to pay for other big-ticket items or are headed for life changes.

How Can I Use the Equity in My Home for a Second Mortgage?

The first thing you want to do is find out how much equity you have and what you want to buy. As the market has changed quite a bit over the years, it makes sense to shop around for refinancing and second mortgage opportunities. This was you can be sure you are getting the best deal out there. Call BMC Mortgage & Investments today to talk about a second mortgage with us.