If you have a vacation home or investment property with an older, expensive mortgage, consider a refinance so you can take advantage of historically low mortgage rates. At a time when financial constraints have forced some borrowers to sell second properties, refinancing can help make the property more affordable. "You can borrow money at a very low rate, and that makes financial sense," says Gibran Nicholas, CEO of CMPS Institute, a national organization that certifies mortgage lenders and bankers in Ann Arbor, Michigan. If you're able to lower your mortgage rate by 1 percentage point or more, it could save you thousands of dollars, says Michael Moskowitz, president of Equity Now, a mortgage lending company in New York City. Refinancing a vacation home is not much more complicated than getting a loan on a primary residence. However, getting approved for any mortgage is much more involved than it was before the housing crisis, Moskowitz, says. In order to qualify, you'll likely have to provide tax returns, several bank statements and proof of income to show your ability to repay the loan, he says. However, there are some key differences between getting a mortgage on a primary residence, and securing a loan on a vacation or investment home.
Higher rates for second-home refinances
For starters, homeowners likely will pay a higher interest rate on the refinance of a second home or investment property. Nicholas says that with a vacation home -- also known as a "second home" -- "interest rates are comparable to rates for a primary home," although you may have to pay one-eighth to one-quarter percent more. Meanwhile, mortgage rates for investment properties usually run about 1 percentage point above owner-occupied residential mortgages, says Keith Gumbinger, vice president of HSH.com. The amount can be more or less, depending upon whether fees are incorporated into the interest rate or not.