Can I Refinance a Second Home? 
6 minute read
November 17, 2022


If you have a second home, rental or investment property, or vacation home, you might be thinking about mortgage refinancing.

Homeowners who refinance a second home can take advantage of several benefits, such as better interest rates or improved loan features that save them money.

Reasons to refinance a second home

A new home mortgage loan can help improve your financial situation in a variety of ways. Common reasons homeowners refinance a second home include the following. 

Save money

If you refinance your second home with a new mortgage that has a longer loan term or lower interest rate than your existing loan, you can generally reduce your monthly mortgage payments.

Secure a lower interest rate

Mortgage loans with lower interest rates mean you’ll pay less overall interest during the loan’s lifetime. Refinancing your second home is a chance to lower the interest rate on the mortgage. 

Switch to a fixed interest rate

If the existing mortgage on your second home is an adjustable-rate mortgage (ARM), switching to a fixed-rate mortgage can help you avoid future interest rate fluctuations. A fixed-rate mortgage also comes with the benefit of predictable monthly mortgage payments. 

Lump sum cash payment

If you refinance your existing mortgage with a new loan for more than you owe, you can receive a lump sum cash payment for the difference. 

Cash-out refinancing gives you access to your home’s accumulated equity to fund important purchases. 

Before we dig into how you can refinance a second home, let’s look at the difference between a second home and an investment or vacation property.

The difference between a second home and an investment property

As its name implies, a second home is an additional property you own and live in for part of the year. 

Some mortgage lenders require proof your second home is more than 50 miles from your current home. And some lenders will only consider single-family residences as second homes. 

In contrast, investment properties are those properties you buy to earn rental income or net a profit by “flipping.” Investment properties aren’t limited to single-family dwellings and can also be commercial properties.

Though the process of an investment property refinance is a little different than others, it is possible. 

Is the refinancing process the same for a second home?

Refinancing a second home is very similar to refinancing your primary residence

The one major difference being you’ll have to be able to show that your second home isn’t used as a rental property.

For both no-cash-out and cash-out refinance of a second home, Fannie Mae defines a second home as follows:

  • Borrower must live in the home for “some portion” of the year
  • Must be a single unit (can’t be a multi-family dwelling)
  • Suitable to live in year-round (for example, a three-season cottage wouldn’t qualify for a second home)
  • The home can’t be used as a rental property, timeshare, Airbnb, VRBO, etc.

Because second homes are generally considered “lower risk” compared to rental properties, mortgage rates are often better than investment properties.

Loan-to-value ratio

While loan-to-value (LTV) maximums can vary by lender, borrowers generally look for more equity when it comes to refinancing a second home—especially if the borrower is interested in a cash-out refinance. 

Most mortgage lenders recommend borrowers have a minimum of 20% home equity before applying to refinance a second home.

Second home cash-out refinance

Considering that home values have risen steeply in recent years, owners with second homes can tap into that equity and pull out a lump sum cash payment.

Cash-out refinance for a second home works the same as cash-out refinance for your primary residence: apply for a cash-out mortgage on your second home for more money than you owe. Your new mortgage pays off the existing mortgage minus any closing costs, and you receive the difference in cash.

Let’s look at an example of a second home with an assessed value of $300,000

If your current mortgage balance (plus any closing costs tied to your new cash-out refinance mortgage) is $175,000, and your new home loan is for $225,000, you’d receive a lump sum of $50,000 at closing. That money is free and clear to use for any purpose you consider worthwhile.

Calculate your new payment with our refinance calculator

To get a better understanding of how much you could receive with a cash-out refinance, use our refinance calculator. Simply input basic information about your mortgage and your second home, and let the calculator do the math.

You can play around with different scenarios to see what works best for your situation, such as a larger loan amount or a longer mortgage term.

Lock in refinance interest rates with mortgage preapproval

With mortgage preapproval, you can get an even more specific estimate of mortgage amounts and interest rates. 

Mortgage preapproval is free and takes only a few minutes to apply. When you get preapproved to refinance a second home, you’ll receive a mortgage rate quote locking in the quoted interest rate for up to 120 days—regardless of market activity.

Do I need good credit to refinance a second home?

When it comes to refinancing your second home, you’ll need to have good credit. While there isn’t a set minimum score for second home refinancing, most lenders look for credit scores of at least 680 for a no-cash-out refinance, and 720 for a cash-out refinance.

Can I get a cash-out refinance to buy a second home?

Home buyers can get a cash-out refinance, using the equity in their primary residence to purchase a second home. Homeowners can use the equity in their existing mortgage through a home equity loan or line of credit (HELOC).

Should I refinance my second home?

Refinancing a second home can offer significant advantages, depending on your financial situation. 

While the lending requirements are typically stricter, and loans can offer higher rates, many homeowners with good credit and sufficient home equity can save money by refinancing a second home.

If you own a second home and you’re exploring ways to finance important expenses, AAA Banking can help, or you can start your application online today.

If you have questions about refinancing, what interest rates you might qualify for, or any part of the mortgage process, reach out to licensed home loan specialists at AAA Banking.

Photo by RODNAE Productions from Pexels

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