Sometimes a good real estate opportunity may arise, such as buying a property at a good price, or a parking space or an office…, but we have not yet stopped paying our current mortgage. Can we extend it, or ask the bank for a mortgage for a second home?
To begin with, a second home should be defined as the one where we do not normally live, and it could be divided into two categories, depending on the use we give it: it would be for vacation use, if it were a property for personal use and non-habitual residence; or investment product, if its purpose was lucrative (a rental, a sale). This distinction is important, since some entities have different mortgages for each case.
In any case, the main characteristics of a mortgage for a second home are a shorter repayment period, a lower maximum percentage to be financed and stricter conditions. On the other hand, we will have to distinguish between this (in which case we would request the loan to acquire an additional property), and a second mortgage (which is a second loan, when we have not repaid the first). In any case, it can be risky for the bank, so it will be demanding with its conditions.
Characteristics and conditions for requesting a mortgage for a second home
- Apply for a second mortgage, an expensive option that involves risk, since we will have to face two loans at the same time. It will be necessary to have some savings because, in addition to paying the expenses involved in requesting a second mortgage, in this case the entity will not finance more than 65 or 70% of the amount at most (that is, if the percentage of money saved to face a first mortgage is 30%, now it could rise to 50%). In addition, they will require a much shorter repayment term (10 or 20 years) and more interest, regardless of whether the mortgage is fixed, variable or mixed. Opening commission, or withdrawal commission, if we amortize before the end of the term. We can assess the option of contracting combined products that can lower the interest, and very possibly have a guarantor, since the bank may ask us for it. The main advantage of requesting a loan against a second home is that we will not put the first one at risk.
- Request a second mortgage on the first home (or remortgage our main home), canceling the previous mortgage for a higher amount. When mortgaging the property that we have already mortgaged, the bank will add both debts and may grant us the loan as long as we do not exceed 75% of the appraised value of the first home. In addition, we can only guarantee our second home with the first if the value of this is much higher; if we have paid at least 50% of the first debt (that is, we have little left to pay); and above all, we must have a good credit profile. Finally, they will cut the repayment terms to a maximum of 20 years. In short, this operation will generate many expenses because we will have to pay the cancellation of the first one and the opening of the new one.
- Carry out a mortgage novation on our current loan to expand it, also adding the second home. In this way we will unify both loans and obtain more affordable installments and interests than separately. In this way we will expand the capital and the payment terms (that is, we will reduce the monthly payments, although we will be paying for more years).
How much financing is possible to obtain with a second mortgage?
Financial institutions grant mortgages that, at most, cover 80% of the appraised value of the property. In order for there to be a situation where there are two mortgages, the sum of the outstanding capital of the first and the money requested for the second cannot exceed this percentage. Giving a practical example, in a house with an appraisal value of 100,000 euros, the bank, in general, finances up to 80,000 euros. If the outstanding capital of the mortgage with which the purchase of this home was financed is 40,000 euros, the applicant may aspire to achieve another 40,000 euros at most.
Steps to apply for a second mortgage
- Get advice and apply for the mortgage. The first step is to talk to the bank’s specialist and make a formal request.
- Submit the information. The bank will require the applicant a series of information of an economic nature (such as the work life report, the employment contract and the last income tax return, among other documents).
- Study of the request. The banking entity will analyze the solvency of the mortgage holder, through the well-known bank scoring, to determine the client’s level of risk and whether or not to grant the second mortgage loan.
- The customer receives the offer. The person requesting the mortgage receives a Pre-contractual Information Sheet (FIPRE), a non-binding document that includes the basic characteristics of the mortgage such as the interest rate, the links and the preparatory expenses, as well as the currency to which it refers .
- Previous act. After having received and analyzed these files, the client must go to the notary’s office to verify the conditions of the mortgage contract with the notary and sign the so-called preliminary act, which is sent to the bank.
- Sign the mortgage. After signing the preliminary act, the date is set to sign the mortgage at the notary’s office with the bank, which will have to once again explain to the client the conditions and charges of the mortgage loan.
