Luxury second homes
Types of fractional ownership financing
CashOf course, paying for your second home in cash is the most straightforward option — there's no financing application, no contingencies and, best of all, no monthly mortgage payment or interest charges. However, not all buyers have the amount of cash required to purchase shares in a property without financing. Luckily, there are a few other options.
MortgageWhile not every bank or credit union offers mortgages for fractional ownership purchases, an increasing number do. It’s important to note that qualifying for a second home mortgage can be more difficult than qualifying for your first mortgage. You may need a higher credit score, longer employment history and a down payment of 20% or higher. If you’re buying in a new vacation community, the property developer may offer financing through a banking partner as a way to encourage purchases.
Home equityIf you already own a home and have a significant amount of equity, you may be able to tap into it to purchase your second home. There are three different ways to do this. Be sure to explore your options with your financial advisor, mortgage broker or accountant.
- Home equity line of credit (HELOC): A home equity line of credit is a revolving credit line secured by the equity in your home. A HELOC typically features a variable interest rate, but the rate is usually lower than home equity loans, credit cards or personal loans.
- Home equity loans: Similar to a HELOC, a home equity loan is secured by the equity in your existing home. But unlike a HELOC where you only pay interest on the money you draw, with a home equity loan, you take out a loan for a set amount, with a fixed repayment schedule.
- Cash-out refinance: A third option is to refinance your property for a higher amount than you owe, withdrawing the difference in cash. This option typically only makes sense if current interest rates are comparable or lower than the rate you have on your existing mortgage.