Can I request a second mortgage if I am still paying for the loan on my first home?

Mortgage on a second home

Sometimes a good real estate opportunity may arise: how to buy a property at a good price, or a garage space or an office..., but we have not finished paying our current mortgage. Can we extend it or ask the bank for a mortgage on a second home?

To begin with, it would be necessary to define a second home as that in which we do not normally live, which could be divided into two categories, depending on the use we would give it: it would be for holiday use, if it were a property for own use and a second home; or an investment product, if its purpose was lucrative (a rental, a sale). This distinction is important, since some entities have different mortgages for each case.

In any case, the main characteristics of a second home mortgage are a shorter repayment period, a lower maximum percentage to be financed and stricter conditions. Furthermore, we will have to distinguish between this one (in which case, we would ask for the loan to acquire an additional property), and a second mortgage (which is a second loan, when we have not repaid the first one). In any case, it can be risky for the bank, so it will be demanding with its conditions.

Characteristics and conditions to request a mortgage on a second home

• Applying for a second mortgage, an expensive option that involves risk, since we will have to pay two loans at the same time. It will be necessary to have some savings because, in addition to paying the expenses involved in requesting a second mortgage, in this case, the entity will not finance more than 65% or 70% of the maximum amount (that is, if the percentage of funds saved to pay for the first mortgage is 30%, now it could amount to 50%). In addition, they will request a much shorter repayment period (10 or 20 years) and more interest, regardless of whether the mortgage is fixed, variable or mixed. Arrangement or cancellation fees, if we repay before the end of the term. We can assess the option of contracting combined products that can lower the interest rate, and quite possibly have a guarantor, since the bank may request it. The main advantage of applying for a loan on a second home is that we will not jeopardise the first mortgage.
• Request a second mortgage on our first home (or remortgage our primary residence), cancelling the previous mortgage for a higher amount. When mortgaging the property that we have already mortgaged, the bank will add both debts and may grant us the loan as long as we do not exceed 75% of the appraisal value of the first home. In addition, we can only guarantee our second home with our first home if its value is much higher; if we have paid at least 50% of the first debt (that is, we have little left to pay); and above all, we must have a good credit profile. Lastly, they will reduce our repayment terms to a maximum of 20 years. In short, this operation will generate many expenses because we will have to pay for the cancellation of the first one and the arrangement of the new one.
• Perform a mortgage novation on our current loan to extend it, also adding the second home. Thus we will unify both loans, obtaining more affordable instalments and interest than separately. This way we will increase capital and the payment terms (that is, we will reduce the monthly payments, although we will be paying for more years).