Home Buying in 33647>Question Details

Malayappan S…, Home Buyer in 48323

What is the rationale for charging a higher interest rate for a second home?

Asked by Malayappan Shridhar, 48323 Mon Mar 23, 2009

I find that many lenders want to charge half point more for a second home.

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Higher risk means Higher interest rates. If you lose your job or for some reason cannot make your monthly mortgage payments, and you have to make a desicion which house payment you are not going to make, second home or your Primary residence? Second home right? you're not going to default on the home you sleep in. It's a higher risk when funding second homes because of the risk. Higher risk means Higher interest rates.
2 votes Thank Flag Link Mon Mar 23, 2009

Thats a good question. The rationale, from the lenders position is that the propperty is secondary- usually a vacation property or investment. Typically, people will walk away from this type of property much quicker and with less hesitation as opposed to an owner-occupied primary residence. Like mentioned befrore me- the higher risk is one reason for the higher interest rate.
1 vote Thank Flag Link Tue Jan 19, 2010
A second home is more disposable that a primary residence and therefore a bigger risk.
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1 vote Thank Flag Link Mon Mar 23, 2009
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