Interest rates have been rising, and this isn’t only a benefit for your primary residence. If you own a second home or investment property, it is a good time to find out if you can refinance your mortgage and save money.

Refinancing a second home is generally as straightforward as securing a mortgage for a primary residence. However, the process of refinancing the mortgage on a 2nd-home or investment property has become more rigorous since the housing debacle.

Find Out How People Are Refinancing Investment Home, Rental Properties and Second Homes in 2024

refinance investment property

There are many similarities between refinancing your primary residence and second home, but there some differences to be aware of, too. Hopefully second home mortgage rates will fall in 2024.

Consider refinancing an investment property or vacation home if the current interest rates are below what you have.

Also consider refinancing if your credit scores have improved dramatically and you think you may qualify for a better mortgage than your existing loan.

  • Competitive 2nd Home Refinancing
  • Cash Out Options with Investment Homes and Rental Properties
  • Compare Private Money Lenders

The RefiGuide will match you with brokers and lenders that specialize in refinancing second homes and rental properties so you do not have to worry.

Understanding the Distinction Between Refinancing a Second Home vs an Investment Property

Before applying for a mortgage refinance it is important to discern between a second home and an investment property, often interchangeably referred to as rental properties.

A second home is a property where the owner resides for a portion of the year, whether for extended periods or weekends. As long as it predominantly serves the owner’s occupancy, it qualifies as a vacation home.

Conversely, an investment property is a residence owned by an individual but inhabited by a tenant. Typically, these properties are leased out to generate passive income, but any property under one’s control and occupied by another individual can be categorized as an investment property.

This doesn’t imply that you can never rent out your vacation home during periods of non-occupancy, but we’ll delve into this aspect later on.

Below are some important tips to know if you want to refinance your second home or investment property.

#1 Refinancing Basics Are The Same

First, know that whether you are refinancing your primary home or a vacation property in Arizona, the process is mostly the same. If you want to just change the rate and term, you need to know what your current rate is and compare it to the new rate you would have.

If you will save at least .5% or.75% on your interest rate, it may make sense to refinance your second home. You also should see what your closing costs and fees will be compared to the money you will save with the lower rate.

#2 Think About How Long You Will Keep The Property

As with a primary residence, how long you intend to keep the second home is a key consideration as you think about refinancing. Do you want to keep the vacation property for many years? Then it might make sense to pay closing costs and fees to refinance the property. But if you think you may sell the property in two or three years, you should think carefully about whether it makes sense to refinance.

For example, if you have to pay $10,000 in closing costs to refinance your vacation home and you can save $100 per month in interest charges, it would take almost 10 years for you to break even on the cost.

This doesn’t make sense if you plan to sell the home in two years. In this situation, you might stand pat on your mortgage because you won’t save enough money for the refinance to be worth it. But if you have no plans to sell the home, perhaps the monthly savings are worth the cost.

#3 Refinancing Is More Complex With Second Homes

Lenders always consider second homes as riskier than primary residences. The reason is you don’t live in the home all the time, which makes it more likely you won’t pay the mortgage if things get tight. Most mortgage lenders have stricter requirements for refinancing a second home. You will probably need a higher credit score, a lower DTI ratio, and possibly more income. They also may want to see cash reserves so you can pay the mortgage if your income changes.

#4 Some Lenders May Not Do The Loan

Mortgage lenders this year have a lot of loan applications because the housing market is hot. Also, low mortgage interest rates could lead to more refinance boom in the coming year. Some loan originators may focus their businesses on primary residences for now. So you may need to shop around more to find a lender, banker or broker to refinance a second home or vacation property.

Also, dealing with second homes and investment properties are more complicated for the underwriting department because there are tougher regulations. Further, if you own several investment properties and want to refinance one of them, underwriting is more complicated because details must be provided about the other properties.

#5 Check Your Equity

Interest rates are always important, but some financial experts recommend looking at the equity in the second home more. You should be able to get a 4% rate on a second home with decent credit. But the lender will be very interested to see how much equity is in the property.

The more equity you have, the more likely you can refinance it. But if you owe more on the investment property or second home than it’s worth, you may not be able to refinance it. But there are some programs still available that will let you try to refinance the home. Talk to a home equity lender and see If you have enough equity to do a second mortgage on your investment property. One of them, the federal government’s HARP program has been discontinued. Find out how to take out a home equity loan or HELOC on an investment property.

#6 Think About A Fixed Rate

You can often get a lower rate if you opt for an adjustable rate mortgage. But many experts say you should get a fixed rate mortgage on your second home so you don’t need to worry about rates rising in a few years. Keep in mind that the refinance rate for a second home is about .5% higher than for a primary residence.

#7 Make Sure It Qualifies As A Second Home

You also need to be sure that the property qualifies as a second home or there could be a penalty. This means the property needs to be a minimum distance from your first home. Usually, the second home needs to be at least 50 miles away from your first home. If you need money you may need more equity to qualify for a cash-out refinance on a rental property or second home.

There are still a few lenders that offer HELOCS and home equity loans on second home and investment properties.

The home also needs to be used by your family for at least two wees per year. If you can prove the property is a second home, you will get the best possible refinance rate.

#8 Boost Your Credit Score

It’s simpler to get a refinance on a second home today, but there still are higher credit requirements. You should have at least a 680 credit score to get the best refinance rates. Also, most lenders want to see that you have a debt-to-income ratio of no more than 42%. The less debt you have, the more likely it is that you will keep up with the mortgage payments on your second home.

Summary on Refinancing Second Homes and Investment Properties

Interest rates are at 20-year highs this year but we hear whispers that rates for second home loans an investment properties should dip soon. It’s still a could be a good time to refinance your second home or investment properties. You’ll probably need to spend more time finding a mortgage lender who will refinance the property at an attractive rate, but it’s still possible.

So talk to your lender today to see if they have a program available to refinance your second home or investment property.