Second home loan: How does it work?
Buying a vacation home, to invest or rent through a second mortgage, may be possible. But in which cases is it allowed and how does a secondary housing loan work?
Can I apply for a second mortgage credit?
Having already contracted a first mortgage loan for the acquisition of permanent own housing, it is possible to contract a second or more, as long as the debt-to-income ratio does not exceed the limit defined by the bank.
The effort rate represents the ratio between the monthly income received by a household, versus the monthly payments with credits. The recommendation of the Bank of Portugal is that this rate should not exceed 35%. The ideal effort rate should be between 30% and 34%.
In other words, if your income can cover the expenses of more than one mortgage, you can apply. However, after the first home, a second mortgage will have as its purpose secondary or income housing. In this case, the credit conditions proposed by banks are different.
What are the conditions for a second housing credit?
A second home loan for buying a vacation home, for investment, or for rent may have worse conditions than a first loan.
Even if the effort rate does not exceed the maximum defined by the bank, and the credit can be granted, because you already have a home loan, the rate will be higher. Therefore, the conditions will be less favorable.
The main differing condition is related to the loan-to-value of the loan. The maximum amount that banks lend for a secondary home is around 80%. Meanwhile, for primary residence properties, banks lend up to 90% of the value.
The amount financed by banks in a second mortgage is then lower. Just like in the first loan, banks lend the lower value between the purchase price and the appraisal value.
Regarding other credit conditions, such as interest rates, they do not differ from the first home loan.
Regarding the maximum financing term, it may be limited to 30 years, regardless of the age of the holders, and a limit of 75 years old for the oldest holder at the end of the contract.
The remaining conditions proposed by banking institutions may be similar. However, there may be exceptions where the conditions presented are different depending on the entities.
Taxes work similarly to buying a permanent and personal residence. You have to pay the Stamp Duty Tax (IS) and the Municipal Tax on Onerous Transfers (IMT) at the deed. However, the IMT payment amount is different for secondary residences with a separate table. In addition, there is an exception that in a second home, you are not entitled to exemption from the Municipal Property Tax (IMI). And you still have to declare the capital gains from a secondary residence in the IRS settlement.
If you want to proceed with hiring a second mortgage loan, for a secondary housing, you should then request a simulation from several banks. Then, analyze the conditions proposed by each bank through the European Standardized Information Sheet (ESIS) and compare, to find the most suitable for you. Credit intermediaries Poupança no Minuto can help you with all the bureaucracy and comparison, in order to contract your second mortgage credit without complications.