Why Mortgage Rates Are Higher on Second Homes

Mortgage rates on a second home are much higher than those on a primary residence because lenders consider these types of loans a great risk.

Interest rates are the methods used by banks to gain a profit from the consumer. The higher the interest rate, the greater the profit. Borrowers who apply for a mortgage for a second home must be able to qualify for the loan based on their current incomes. The majority of lenders will not allow a borrower to rent out the property to help supplement the borrower's income or to pay the mortgage. To qualify, someone must be able to verify that he can comfortably pay both his primary mortgage and the mortgage for the second home with his income, even without the loan. Most lenders believe lending money on a second home is a high risk because if the borrower is suddenly faced with a financial hardship, he is more likely to make the payments on his primary residence than on a second home. While many lenders are still willing to extend credit to a consumer to purchase a second home, they desire to earn a greater profit on the loan because of the risk they're taking in extending it.