Scroll to the bottom of the page for our vacation home mortgage calculator. Simply complete the inputs below, including the purchase price, down payment, length of loan and interest rate to determine your monthly mortgage payment and amortization schedule. Before running the calculations, consider these helpful guidelines.
Note: if you’re interested in understanding how much vacation home you can afford, be sure to check out our Can I Afford a Vacation Home Calculator.
Vacation Home Mortgages
Lending Guidelines, Interest Rates and Down Payment Requirements
With mortgage rates at historical lows, now may be the perfect time to buy a vacation home. As of the date of this posting, interest rates for five year fixed mortgages are being offered as low as 2.5% by some lenders in the United States (30 amortization period) and below 2.00% by some lenders in Canada (25 year amortization period).
Yet, mortgages for vacation homes are typically accompanied by larger down payment requirements, higher interest rates and more conservative lending guidelines. This is due to the increased risk profile of a vacation property as owners may be more willing to walk away from their mortgage when faced with financial hardship. For instance, while certain lenders may require a down payment of only 5% for a primary residence, many lenders in the United States and Canada will require a down payment of at least 20% for a vacation home.
Still, favorable mortgage terms on second homes are often available for qualified borrowers.
The amount you can borrow towards a vacation home will depend on a number of factors, including those factors noted below.
Consider Debt to Income Ratio
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). Although each lender will have its own specific requirements, most financial experts recommend keeping your debt to income ratio at a rate of 30% or less for home expenses and no more than 43% overall.
For illustrative purposes let’s use a ratio of 30% for home expenses and assume your gross monthly income equals $10,000 before taxes. This means that your total mortgage, home insurance and property taxes can total up to $3,000 per month (30% of $10,000). If payments for your primary residence total $1,500 each month, this means that you can afford to pay $1,500 per month for a vacation home. Using the vacation home mortgage calculator below, this means you can likely afford a vacation home with a purchase price of $475,000, assuming 20% down ($95,000) and a 2.5% interest rate on a 30 year amortization period.
Home Equity Line of Credit
If you have managed to pay off a portion of the mortgage on your primary residence, you may be able to borrow against the value of your home to maximize your borrowing power. A popular way of extracting this value is through a home equity line of credit. Many banks will allow you to borrow up to 80% of the appraised value of your home less the amount you owe on your first mortgage (although HELOC loans with federal financial institutions in Canada are limited to 65% of the appraised value). Keep in mind that the maximum borrowing limit includes your first mortgage. So assuming your home is worth $450,000 and you have $100,000 left on your mortgage, you would have up to $260,000 (80% of $450,000 less outstanding mortgage of $100,000) available towards an investment in a vacation home. If a HELOC is not available to you, consider taking out a second mortgage instead.
How Rental Income Increases Borrowing Capacity
If you plan on renting out your vacation home part time, you can use the rental income to offset the costs of owning a home. Depending upon the lender, you may also get credit for up to 70% to 75% of the projected fair market rents. For illustrative purposes, let’s assume you have a gross monthly income of $10,000 before taxes and that your monthly costs are $2,000 for your primary residence and $2,500 for the vacation home. Your debt to income ratio would equal 45% for home expenses ($4,500 / $10,000), or 15% in excess of what lenders will typically permit. But let’s also assume that you can generate $2,050 per month in rent from an income suite in your vacation home. After receiving 70% credit for the rental income ($1,435), from a lender’s perspective your debt to income ratio is now a more modest 30% for home expenses (($4,500 – $1,435) / $10,000).
With these guidelines in mind, our vacation home mortgage calculator can help run the numbers.
Vacation Home Mortgage Calculator
Complete the vacation home mortgage calculator inputs to determine your total monthly mortgage payments.