With interest rates relatively low, many mortgage lenders are offering attractive rates, tempting would-be borrowers to finally pursue their dream of owning a vacation home or rental property. If you’re one of them, be sure to consider the other financial—and emotional—costs to owning a second home.
After several years of historically low interest rates, the Federal Reserve looks ready to start raising rates again. And while your savings account may benefit from such a hike, your borrowing power is likely to take a hit. Does that mean now is the time to purchase a mortgage for that second property you’ve always dreamed about?
I don’t have a crystal ball nor was I born with powers to predict the future, but what I do have is experience in owning a second home. It actually started as my first home, but after moving to another state, I decided to keep it, thinking the rent payments would be a nice, reliable source of income. I rationalized that house prices tend to rise at least in line with inflation, so as an asset I figured it wasn’t likely to depreciate in value. I ended up renting the house out to young professionals (and even some students) for several years, but in the end I decided the trade-off was not worth it.
So here are a few things for you to consider before jumping on those still-seductively-low interest rates:
For me, being responsible for the property long distance was too much of an emotional and time burden for it to be ultimately worthwhile. But your cost-benefit analysis may produce a completely different answer. It all depends on your priorities and personal circumstances. If you decide that it’s a good investment of your time and energy, by all means take advantage of the current interest rate, and shop around for the lowest-rate mortgage you can find. We can all relate to the maxim “home sweet home.” And for many people, a second property can be just as sweet.