The Downside of a Second HomePurchasing a second home can seem like a dream come true for many people. The idea of having a vacation home to escape to or a rental property for passive income can be very alluring. However, there are downsides to owning a second home that are important to consider.
Higher interest rates for a second homeOne of the first things to consider is the interest rate associated with a second home. Lenders generally see a second home as a riskier investment and often charge a higher interest rate as a result. While it is possible to find competitive interest rates, be prepared for the possibility of a higher rate than what your primary residence mortgage would be.
More risk associated with a second residenceA second residence can also carry more risk than a primary residence. If you are using the property as a vacation home, there is a risk of damage or theft occurring while you are not present. And if the property is a rental, there is always the risk of tenants damaging the property or not paying rent on time. These risks can add up and potentially lead to financial losses.
- Bold text: When investing in a second home, be prepared for the added risks that come with the territory.
Financial difficulties can lead to foreclosure of a second homeIf financial difficulties arise, homeowners are more likely to let their second home go into foreclosure than their primary residence. This is because people tend to prioritize their primary residence above all else. In tough financial times, many people choose to sell their second home or let it go into foreclosure before missing payments on their primary residence.
- Bullet point: Second Homes are not typically considered a person’s major obligation.
- Bold text: Understand the financial risk and prioritize your mortgage payments accordingly.