Second Home Mortgages Are Up 178% -- Should You Buy Another Home?

Is now the right time to buy a second home, or should you stick with one?

In this tight housing market, many buyers are struggling to become homeowners for the first time. But in spite of that, a lot of people are managing to become second-time buyers.

The number of people who signed mortgages for a second home rose 178% year over year in April, according to a recent Redfin study. It's true that this number may be inflated due to demand for second homes plunging drastically in April of 2020, when the pandemic had only recently broken out. But now, second-home mortgages are getting locked in at more than double their pre-pandemic levels.

Of course, mortgage rates have been extremely competitive over the past year, which may have inspired more people to purchase a second property. But is it a good idea for you to buy a second home?

The upside of owning another home

Buying a second home gives you a chance to own an asset that could increase in value over time. For example, if you buy a second home today for $250,000, in 15 years, it could be worth $325,000, leaving you in a position to make a nice profit.

Your second home could also serve as a nice income stream in the near term. Say you buy a home that you rent out on a short-term or seasonal basis. That rental income may be enough to not only cover your mortgage and maintenance expenses, but also, to put a little extra in your pocket so you're making money on that home.

But financial benefits aside, let's not forget that owning a second home could improve your quality of life. Having a place to escape to could work wonders for your mental health. If you buy a second home in a vacation spot your family tends to frequent, it could spare you the hassle of having to make lodging arrangements every time you head to that neck of the woods.

The downside of owning another home

Of course, there are drawbacks to buying a second home too. For one thing, you may tie up a lot of money in that home in the form of a down payment. That's money you'd otherwise be able to invest, or use for other things.

Also, any time you own a home, you run the risk of things going wrong and having to cover repairs. And if you buy a second home, that risk may double for you.

Along these lines, if you buy a second home, you'll need to maintain it. If that home isn't near your primary home, that could mean a lot of driving or flying back and forth (unless you hire a property manager to maintain the home, which is a viable option, but one that could cost you a lot).

Is a second home right for you?

If you're looking to buy a second home, from a mortgage-rate perspective, now's a good time. However, home prices are also inflated on a national level, so what you save with your mortgage rate, you might lose in the form of a higher purchase price.

But that aside, you'll need to figure out if you're ready to take on the logistical and financial responsibility of owning a second property. You'll also need to make sure you can afford that home if your plans to rent it out for part of the year don't pan out. Crunch your numbers carefully so you don't get in over your head. Owning a second home could end up making you very happy, but take the time to think things through before making that leap.