Using home equity to buy a second home

You borrow against the home you live in now and use the cash toward the second home. Often that's the down payment, with a second-home mortgage covering the rest. If you have a lot of equity and the second home costs less, the cash may cover the full price.

If your current rate is low, a home equity loan often makes more sense, since you keep that rate. If today's rates are close to yours or lower, a cash-out refinance may be worth comparing. CapCenter home equity loans range from $50,000 to $250,000, and both options come with ZERO Closing Costs (restrictions apply).

• Home equity loan: keeps your current mortgage and its rate, and adds a second fixed-rate loan
• Cash-out refinance: replaces your current mortgage with a larger one

A second-home mortgage is for a home you'll use yourself for part of the year, not one you rent out full-time. Second-home loans often need a larger down payment than primary-home loans, and rates can be a little higher. CapCenter finances second homes.

• Your debt-to-income ratio with both housing payments, plus the new equity loan
• Savings left after closing, often called reserves
• Your credit and income
• How you'll use the home, and its distance from your primary home

In some vacation areas, insurance can cost more, especially near the coast. Get an insurance quote early so there are no surprises.

• Property taxes and insurance on both homes
• HOA dues, utilities and maintenance on both
• Travel to and from the second home
• Repairs you may need to handle from a distance

Occasional rentals may be fine with a second-home loan, depending on the program. If you plan to rent it out most of the year, the lender may treat it as an investment property, which has different rules and rates. Be upfront about your plans.

Borrowing against your home puts it on the line for the new debt. Before you borrow, make sure you can handle both payments if your income dips or the second home needs a big repair.