Two ways to tap second-home equity
A cash-out refinance replaces the mortgage on your second home with a new, larger loan and pays you the difference. A home equity loan leaves that mortgage in place and adds a second fixed-rate loan with its own payment.
If you like the rate on your current second-home mortgage, a home equity loan lets you keep it. If today's rates are at or below yours, a cash-out refinance may be worth comparing.
Why limits are lower
Lenders see a second home as a bit more risk than the home you live in, because people tend to protect their main home first when money gets tight. So conventional cash-out loans on a second home usually leave more of your equity untouched than they would on a primary home.
Here is the basic math. A second home worth $300,000 with $120,000 owed has $180,000 in equity. You won't be able to borrow all of it. With CapCenter, the maximum depends on the loan type and purpose, and a loan consultant can tell you yours. A CapCenter home equity loan runs from $50,000 to $250,000.
Why pricing can be higher
Second homes and cash-out refinances can both carry pricing adjustments. At CapCenter, they are among the cases where an upfront fee may be charged when the rate can't be adjusted enough to cover them. Your quote shows any added costs, so you can compare the two options side by side.
Keep the occupancy rules in mind
A cash-out refinance on a second home is underwritten as a second home, so the home needs to stay one. Rules generally include:
- You or your family use the home for some part of the year.
- It's a one-unit home suitable for year-round use.
- It isn't rented full-time or run as a timeshare.
Check the property type first
CapCenter home equity loans are available on single-family primary residences and second homes. Condos, 2-4 unit homes, manufactured homes and investment properties aren't eligible. Many vacation homes are condos, so if yours is one, a cash-out refinance may be the option to explore, where available.
Compare with your primary home
Borrowing against your primary home instead may cost less, since primary homes usually get the best pricing. The trade-off is that the loan is then secured by the home you live in. Your loan consultant can price both so you can see the difference.
Before you decide
- Compare your current second-home rate with today's rates.
- Add the new payment to your budget for both homes.
- Have a clear use for the cash, like repairs or paying off higher-rate debt.
- Ask how any rental use affects your occupancy type.
