Borrowing for a second home: what are your options?
Keytrade Bank
keytradebank.be
March 19, 2024
3 minutes to read
You’ve dreamed for so long of a place of your own by the sea to go listen to the waves regularly. Or you've set your sights on a lucrative apartment in the heart of the city, ideal for renting out. Great ideas! However, right now you still have a loan for your own home. Can you simply borrow again for a second home? Is it financially possible? And what about the tax situation? Here's an overview.
How can you borrow money for a second home?
If you still have a loan running, there are two potentially attractive financing options available to you:
- You can take out a completely new mortgage loan on top of your current loan
- You can re-borrow the equity under your existing loan
1. A second, completely new mortgage loan
In the same way as when financing a first family home, you can opt for a new mortgage loan for a second home or an investment property. The application process itself is not very different to that for a first mortgage loan. For example, you need to involve a solicitor again and pay registration fees.
However, a number of varied conditions will be considered if you want to take out an additional mortgage:
Down payment: a second mortgage loan may require a higher deposit from you than a first loan, to compensate the increased risk for the bank.
Income stability and level: are you financially stable enough to repay two mortgage loans at the same time?
Existing debt commitments: your existing debt commitments, including your first mortgage loan, are evaluated in more detail, to establish your overall debt ratio.
Rental income: for investment properties, banks will also look at the potential rental income that the property can generate. However, it is unlikely that 100% of these revenues will be included in the calculation. As a landlord, you are liable for certain (sometimes unforeseen) costs such as maintenance, new investments, withholding tax, etc.
Property value: the bank will take a very close and careful look at the value of the second property, and the ratio of the loan to that value.
Use of the property: will the property be used for rental, as a holiday home, etc.? The usage can also impact the assessment and terms of the loan.
Please note: when you switch from one to two mortgage loans, a number of game-changing points will logically come into play. Both for the bank and for you as customer:
- Having two simultaneous loans increases your level of financial risk for the bank, and may therefore lead to higher total costs.
- Managing two separate loans can lead to more complex administration and repayment processes. Work with a bank that is able to assist you properly with this.
- You need to provide a second form of collateral.
Just like when you finance your first family home, you can opt for a new mortgage loan for a second home or investment property. But that’s not the only option you have.
2. Releasing equity through your existing mortgage loan
You may already be quite a way along with the repayment of your first mortgage loan. In that case, an equity release may be an attractive approach.
What this means in practice is that you re-borrow the capital you already repaid on your first loan to finance your new loan at the interest rate that applies now. For this approach, you do not have to submit new guarantees via the solicitor and you save on the deed costs.
On the other hand, there is the risk that your first home will also serve as collateral for your second loan. If you are unable to repay your loan, the bank can put your home up for sale.
Which is the most logical choice for you?
The arrangement on which you ultimately decide to agree with your banker will depend on several factors:
- How much do you actually need?
- What financial guarantees can you offer the bank?
- What are the terms and conditions of your current mortgage loan?
How much can you borrow for a second home?
How much you will ultimately be able to borrow from the bank will be determined, among other things, by your income, existing debts and the value of the property in question.
Banks will scrutinise your financial situation in detail in order to assess your repayment capacity as closely as possible. In general, the banks are indeed willing to lend for a second home, but the conditions may be stricter than those for a first mortgage.
Are there any tax benefits attached to a second home?
Sadly, no. Since 1 January 2024, the capital repayments and the premiums for loan balance insurance relating to a mortgage loan for a second home are no longer tax deductible. However, there is still a tax reduction available on the interest.
What are your chances of success?
In a nutshell, how quickly you will be able to borrow for a second home is anything but a no-brainer. Both you and your bank need to make a carefully considered decision with a view to a secure future.
How well are you doing today? How good are your chances of getting the green light straight away for a mortgage loan for a second home? We can already give you a very good estimate. Run the Keyhome simulation now and take the first important step towards your new home.
Other articles that might interest you
Graph of the Week: Magnificent 7 vs 2000s Tech Bubble
Actively managed ETFs: the best of both worlds?
Monthly video 2024
Guide: how much you need in savings
Would you purchase this new product?
6 reasons to invest in food
Checklist: travel without any money worries
Take a moment to read this before sharing your data
Investing in Belgian shares: the dangers of too many domestic securities
Untaxed side jobs: what is allowed and what is not (any more)?
Investors, never pay too much for your favourite share!
Who's who at Keytrade Bank? Who answers the phone when you call us?
Who's Who? Visiting IT
Buying real estate together? Consider a rights of survivorship clause
Taking out a loan for energy-saving renovations: what are your options?
House flipping: is it worthwhile?
What your friends forgot to tell you about cheaper travel
Investing in football shares: what's the score?
12 questions and answers about a lasting power of attorney
Comparing savings accounts: where do you put your money?
Watch out for recruitment scams
Europe is no longer falling behind!
How can I invest or save better for my child?
Opening an online bank account: what is holding you back?
The difference between distribution and accumulation for funds or trackers
Property shares: ripe for a comeback?
Is joining the BEL20 actually good for you?
Writing your own will? Avoid these 10 mistakes
How can you teach your child to save? 12 tips
Online dating scams: tips to protect yourself
Can we still say "Magnificent Seven"? Or should it be "2 Unlimited "?
What type of investor are you? Take the quiz
Invest yourself or have someone do it for you: do you have to choose?
How much can you borrow for a home?
What do you have to tell the tax man about your money and investments?
Monthly video 2023
Start growing your pension sooner rather than later
Shopping online: 7 tips and points to consider
Small company shares with big opportunities?
Golden days? Why to invest in gold (or not)
Exemption from withholding tax on dividends
Looking back on 2023
Will bonds beat shares in 2024?
Watch out, danger's about
Will AI replace human investment advisers?
Passive investing: less effort for a better return
Don't forget to create an extra access!
Shorting: what is it and how does it work?
The 10 principles of stock market success
How to invest in the energy transition?
Read this before you scan another QR code
Good positional play is important!
Keytrade Bank has one of the few free credit cards on the Belgian market
How to put phishers out of a job
Is India the new China?
Padel has got a new doubles partner with Keytrade Bank
Married, cohabiting or in a non-cohabiting relationship: the impact on gifts and legacies
What is a tracker and how do you choose the right one?
Investors are not afraid of risks! Or not yet?
Get ready for the last quarter!
Investing in biodiversity: can Wall Street save the rainforest?
World Cleanup Day
Don't forget to make arrangements for your digital estate
Investing in AI: hype or a ticket to the future?
Saving for the sake of saving? Or with a goal in mind?
How do you prepare financially for a longer life?
Handling recessions: a manual
Sell in May? Is it really such a good idea?
Make an impact with your Keyprivate
New reductions in stamp duty for home buyers
How much diversification is enough for your portfolio?
From KIID to KID: new rules, better investment decisions
Which investment opportunities are available on the road to smart mobility?
Is the end nigh for American dominance?
A vitamin shot for your investments
Does water earn a place in your portfolio?
Bonds to rise in 2023?
Don't forget to include your EPC in your credit application
Monthly video 2022
A Keytrade Bank Nature Trail? Yes, please.
What is technical analysis and how does it work?
Who's who at Keytrade Bank? Data first
Less costs? Yes, please.
The situation following the Russian invasion of Ukraine
There's something new in the air in the investment world!
6 points to consider for thematic investing
Property transfer tax – how much is this tax?
Is tighter monetary policy acting as a brake on the stock market upturn?
How can you donate or leave a legacy to a charity?
As close as possible to staff
A Keytrade Bank Nature Trail? Yes, please.
How do you find out what a company’s ESG rating is?
ESG's alphabet
How much additional income are you allowed to earn as a pensioner?
All in our fund market at the same price
How to invest if you're on a tight budget
No extra costs ...
10 ways to save money with apps
Monthly video 2021
Hate budgeting? This is your guide to budgeting
Podcasts about money and investments (part one)
Can countries go bankrupt?
Inflation? Grab some commodities for your portfolio!
Enjoy your stay at the hotel and pay less
How to choose a tracker (ETF)
Gold, cash and government bonds: how safe are safe havens?
Baby on the way? Make sure your finances are ready for it, too
How to protect your capital in the event of a divorce
The halo effect: why we are buying the shares of Buffett, Bezos and Musk
Why investing for your child is a good idea
Timing is everything: how to choose the right time to enter the stock exchange?
La technologie préserve les investisseurs contre l'utopie
What is fundamental analysis, and how does it work?
How to include your grandchildren in your inheritance planning: 8 questions and answers
Why (not) invest in micro-caps?
The treacherous stock market
Talking to your family about legacy: how to get started
Stock market versus bricks and mortar: 1-0
Buying a second residence: with savings, investments or a loan?
Maths on the stock market
The lazy marathon investor
The impact of luck on investments
Equity investors look beyond gloomy economic data
Ten basic rules for lifelong success on the stock market
Share everything with peace of mind. Except your bank cards.
Any dip in the global economy appears to just a passing blip!
Seven investment myths
Age catching up with you? It's never too soon to think about your retirement
Emerging countries are lagging behind!
First Aid for Your (Financial) Administration
Coronavirus blog Geert Van Herck: Property once again fails to deliver diversification bonus
Gift or inheritance: which is the most tax-efficient?
Saving your payment card details in your browser: yay or nay?
Swapping your car for a bike: how much money could you save?
No extra costs. Yet 700,000 euros gladly given to you, our customers!
Can China make the dollar crash?
Afraid of causing Ferrari or hammock syndrome? This is how you can make a gift and stay in control
US stock market dominance not coming to an end yet!
Podcasts about money and investments (part two)
Anxious about inflation? Have you ever considered the mining sector?
Will the MSCI Emerging Markets index become the next big thing?
What does higher inflation do to your savings and investments?
How can you invest successfully?
Which shares suit you?