Key takeaways
- If you’re considering a vacation home, prepare for higher interest rates and costlier homeowners insurance than you have for your primary residence.
- You’ll also need enough money to cover a new set of property taxes, maintenance, repairs and property management fees.
- In addition, you might choose to invest in security equipment and new furnishings or decor for the home.
Buying a vacation home comes with obvious rewards. But there are risks too, including the possibility that if you plan to rent the home for income, you may not earn enough to offset your expenses. That’s why it’s crucial to crunch the numbers carefully and estimate the cost of owning a vacation home before investing in a property.
The 7 main costs of owning a vacation home
The price of owning a second home can be steeper than you think. There are recurring costs that must be factored in, as well as unexpected expenses, such as a sudden breakdown of an appliance or major system. What’s more, if your rental income stream is interrupted, overall ownership can be more costly than expected.
Here’s a breakdown of seven major costs of second-home ownership.
1. The mortgage — with a chance of increased interest
Your biggest expense is likely to be your monthly mortgage payment. “Usually, a second home mortgage will run about 0.5 percent to 0.75 percent above the interest rate you’d qualify for on a primary residence,” says Polina Ryshakov, director of credit and product at Roc Capital.
As an example, let’s say you do your homework, scout around and pick what looks like a nice vacation property in sunny Tallahassee, Florida. The home price is $300,000. Your lender requires you to put down 25 percent (a higher-end estimate), or $75,000, on a 30-year fixed-rate loan, and your interest rate is 7 percent. In this scenario, your monthly principal and interest payment would be $1,761.
2. Costlier homeowners insurance
In addition to your monthly mortgage payment, the cost to insure your second home may be higher than for your primary home…