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Living in Bermuda, Choosing Your Island Home

Is Getting a Second Mortgage for a Vacation Home Worthwhile?

8 minute read

If you’re tired of the endless searches to find the best hotel when it’s time to unwind and want somewhere abroad that you can truly call home, buying a vacation home is the smartest move. But with so many purchasing options, ranging from cash savings to rental income, is getting a second mortgage for a vacation home a viable option?

It depends on your particular situation. If you’re tired of spending your well-earned vacations in below-par hotels and want your own slice of paradise, here’s why getting a second mortgage for a vacation can be worthwhile.

Disclaimer: This blog is purely intended for informational purposes and shouldn’t be used as a substitute for financial advice. Please seek professional financial advice before financing your vacation home.


The Downside to Getting a Second Mortgage for a Vacation Home

The Interest Rates Can Be High

Although it isn’t always the case, second mortgages tend to have higher interest rates than refinancing options — especially if you’re approaching a different lender than your original mortgage provider.

If you’re taking out a second mortgage from a different lender, they won’t have as much interest in your home as your primary lender, so the interest rate is higher. If this is of no concern to you and won’t impact your finances or budget, then a second mortgage for a vacation home could be worthwhile.

It Can Negatively Impact Your Budget

A second mortgage is a massive commitment as you agree to make two monthly payments — one for your primary residence’s mortgage and another to the secondary lender for your vacation home.

A second mortgage can strain your finances, especially if you don’t have a lot of savings to fall back on. If you’re living paycheck to paycheck, a second mortgage can present significant financial risks, which won’t make a second mortgage for a vacation home worthwhile.

Remember to budget for interest rates potentially increasing, too. The last thing you want is the risk of foreclosure because you didn’t budget beforehand. This is a big commitment, so always seek professional financial advice before committing to a second mortgage.


The Advantages of Getting a Second Mortgage for a Vacation Home 

You Can Finally Enjoy Vacations Again

Finding the right location, arranging the flights, sorting the accommodation and searching endless review websites makes the entire process tedious. Getting a second mortgage for a vacation home in a place you love returning to year after year is worthwhile as you can finally reduce the stress of going away.

Assuming you have the required credit score and you can afford a second mortgage, you’ll finally have a true home away from home where you can create new memories with your friends and family.

You Can Comfortably Prepare for Retirement

With retirement on the horizon, you don’t want the hassle of wondering what life will look like when that day finally arrives. Getting a second mortgage for a vacation home is worthwhile as it’ll make the transition to retired life easier. By starting now, you’ll slowly settle into your future home and lifestyle.

You Can Build Home Equity

If you buy a vacation home in a vibrant and popular location it should rent well and that will generally support a higher list price, which in turn will build home equity.

Before applying for a second mortgage, don’t forget to do your research. Look at housing factors such as price trends, infrastructure investment, amenities and more so you’re 100% confident that you’re making the correct decision.

Visit Whenever You Want

Renting a holiday home or booking a hotel requires you to work around other people’s bookings and schedules rather than your own. A vacation home keeps you in control of your vacations, which is one of the big advantages of owning a second home. As the owner, you can enjoy it when you want. What more do you need?

Add Personality to the Vacation Home

When you total the amount you spend on vacations, flights and hotels throughout the years, only to be limited with what you can do with the hotel or holiday home, it puts things into perspective. When buying a vacation home, you can make it your own (although there are some limits to this if you buy a hotel residence in a Hotel Condominium resort for example).

This is why getting a second mortgage for a vacation home is a popular route, as the loan isn’t restricted in how it’s used, so you can use it how you please, including on the property. 

With traditional vacation homes, though, you’ll need to consider how much you’ll pay for maintenance and other regular upkeep. You need to budget for this and ensure getting a second mortgage with this in mind makes it all worth it. Or, you could go down the managed route, where a management company and/or a hotel brand will manage and help you rent your home.

Ultimately, this is better for your bank balance.

You Can Create a New Revenue Stream

By using a second mortgage to buy a vacation home, you create an opportunity to rent the property when you aren’t staying there. That’s why a desirable location is essential, as the popularity means your vacation home is likely to be in demand and you can build yourself a reliable source of secondary income.

This will at the very least contribute towards the monthly costs of the second mortgage. Over time, your monthly mortgage costs should remain more or less the same, subject to interest rates, whereas your rental rates will increase each year with inflation. As you can charge higher and higher rates, the difference between monthly rental income and mortgage repayments will increase

Stress-free Vacation Home Ownership 

If taking out a second mortgage enables you to buy a vacation home supported by a management company and a rental service, then that's a big advantage.

A management company can take the strain away from you having to look after your vacation home yourself. They handle repairs and maintenance so you don't have to worry while you’re away or bother while you’re there.

Buying a branded residence, like those supported by Hilton, should help you optimize rental income and could make getting a second mortgage for a vacation home a viable option.

The hotel will also look after the advertising, bookings, check-in and housekeeping so you can just sit back and relax.

For a second mortgage on a vacation home to be genuinely worthwhile, the vacation home needs to be in the right location. Only then can you reap the rewards as vacationers flood to book your vacation home for their own vacations.

Think about what vacationers value and need. A climate they envy, quality amenities, year-round activities — all of these factors and more make Bermuda a popular destination for those looking to visit and buy a vacation home.


Why Bermuda?

Bermuda is for everyone. It’s the perfect place to own a vacation home with endless activities, iconic, luscious pink-sand beaches, beautiful golf courses and unique adventures. For more reasons on why you should choose Bermuda, take a look at our latest guide.

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Guide to What Makes Bermudiana Beach Resort so Special