Whether you’re interested in a vacation property, a retirement home or investment property, there are many reasons to buy a second home. Whatever the case, our second home mortgage calculator will help you determine what you can afford in a second home.
Simply input the relevant amounts below to determine your relevant monthly mortgage payment based on the maximum amount you can afford in a second home.
Will you be generating rental income? If so, try our Investment Property Mortgage Calculator instead.
How it Works
Our second home mortgage calculator uses a maximum debt-to-income ratio of 43% overall, which is the maximum amount that many lenders will accept. Your debt-to-income ratio is the percentage of your gross monthly income that goes to paying your monthly debt payments (total monthly debt payments divided by gross monthly income).
After factoring in your monthly income (before tax) and monthly debts (including monthly mortgage on your primary residence), our calculator can determine how much money you have available for a second home. The end result ensures that your total monthly debt payments, inclusive of your second home mortgage payment, does not exceed 43% of your monthly income.
As these are general guidelines only, be sure to discuss your lender’s specific qualification criteria, which may be more relaxed.
Scroll below for further guidelines on second home mortgages and ways to increase your borrowing capacity, including information on interest rates, down payment requirements and home equity lines of credit.
Second Home Mortgage Calculator
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Second Home Mortgage Guidelines
- Overview. Mortgages for second homes will often be accompanied by larger down payment requirements, higher interest rates and more stringent lending guidelines. Simply put, second home mortgages are more risky as owners may be more willing to default on their second home mortgage (as opposed to the mortgage on their primary residence) when faced with financial hardship.
- Second home vs investment property. For borrowers in the United States, if you intend on renting out your vacation home, then lenders may consider it as an “investment property” (as opposed to a “second home”). These types of mortgages tend to have even higher interest rates and down payment requirements and fewer lenders willing to lend you the money. The same is typically true in Canada for vacation rental property mortgages given the increased risk profile of such properties.
- Down payment requirements. While certain lenders may require a down payment of only 5% for a primary residence, be prepared to come up with at least 20% or more for a second home or 25% or more for a vacation rental property.
- Interest rates. Mortgage rates can vary from lender to lender so be sure to shop around for the best rate. For illustrative purposes, posted mortgage rates (as of June 2021) in the US and Canada for second home mortgages include 3.163% (Chase) and 4.79% (Scotiabank), although amortization schedules and other terms will vary. As a general rule, expect second home mortgage rates to be at least a quarter to half a point higher than first mortgage interest rates.
- Credit worthiness. Having a manageable debt-to-income ratio and strong credit score will be important considerations for lenders. As mentioned above, a maximum debt-to-income ratio of 43% overall is the maximum amount that many lenders will accept. A maximum debt to income ratio of 30% for housing expenses is also recommended. In terms of credit score, a higher credit score will result in a larger pool of lenders (including major banks) as well as a lower interest rate on your mortgage. A credit score of 700 or more is where you can expect to pay the lowest rates both in the United States and Canada.
Ways to Increase Your Borrowing Capacity
- Home equity line of credit. A great way to increase your borrowing power is to extract value from the equity built up in your primary residence through a home equity line of credit. Keep in mind that most lenders will not permit a loan-to-value ratio in excess of 80% (or lower in the case of federal financial institutions in Canada). A loan-to-value ratio is the percentage of your home’s appraised value that is borrowed. For example, if your home is worth $500,000 then some lenders may be willing to lend you up $400,000 assuming there is no outstanding mortgage or other loan secured against your home.
- Rental income. If you’re planning on renting out your second home then you may be able to stretch your dollar further and increase your borrowing capacity. Some lenders may give you credit for up to 70% to 75% of the projected fair market rents determined with an appraisal when buying a second home. Note, however, that the Internal Revenue Service may treat your home as an investment property (as opposed to a second home) if you rent out your second home for 15 days or more. Similarly, by renting out a second home more than occasionally, the Canada Revenue Agency may view your property as a commercial enterprise as opposed to a secondary residence.
- Increase credit score and reduce debt. Establish a positive credit history by making payments, such as rent, credit cards and personal loans, on time. For those of you with a high debt load, consider ways you might reduce your existing debt. For instance, paying off credit card debt, car loans and student debt will reduce your debt to income ratio and make you a more attractive borrower in the eyes of a lender.
Other Resources on Buying a Second Home
For further resources on buying a second home, be sure to explore additional articles on second home affordability and second home finances, including our article on How Much Second Home Can I Afford?