Should I Finance a Second Home for Investment Purposes with a Fixed or Adjustable Rate Mortgage?
By Rebecca O Connor

A recent survey done by the National Association of Realtors (NAR) demonstrated that the second home market is much larger than anyone suspected. In fact 36 percent of all homes purchased last year were second homes. Even more surprising 23 percent of those were investment homes, while only 13 percent were vacation homes. However, many of those that own vacation homes also have investment property and "second homes" are quite frequently third, fourth or even fourteenth homes for serious investors. NAR President Thomas M. Stevens states "We've always known that a certain segment has invested heavily in the rental market, and some people earn their living simply by holding and managing investment property. What we see now is a crossover between largely vacation- and investment-home owners, with people recognizing the value of those investments and pouring more assets into real estate." So if you're looking at buying a second home for the purposes of investing, you are in good company.

Financing Your Investment Property

Of course this begs the questions of, "Where do I get the money for a down payment?" and "Should I get a fixed rate mortgage or an adjustable rate mortgage." If you do not have the cash to put down on a second home, but have equity in your primary residence or other property you could utilize it in purchasing your investment property through a home equity loan or 2nd mortgage, and refinancing your current mortgage. Twenty-eight percent of investors with an investment property mortgage used their primary residences to procure down payment funds and you may be able to do the same. If you have not taken advantage of the lower rates since you purchased your primary residence, mortgage financing is something you should consider immediately while the rates are still low even if you are not looking at an investment. There are many options for securing a down payment and financing a second home and if you have the equity and your credit is good, certainly one will work for you. You just need to do a little research to find the best means of investing and be certain that you will be able to afford your payments.

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