Understanding Second Home Loans: Key Differences and Advantages

In recent years, more and more people want to own a vacation home or a second home due to the diversification of lifestyles and the spread of teleworking. On the other hand, purchasing a second home requires a financing plan that differs from a regular mortgage. This is where "second home loans" are attracting attention. This article will explain in detail how second home loans work, their features, application requirements, and even how to choose one.

What is a Second House Loan?

A second house loan is a special loan product available to those who already own a home to purchase a "second home" such as a vacation home or second house. Normal mortgage loans cannot, in principle, be used for the purchase of a second home, as they are based on the assumption that the borrower will "actually reside" in the home. This is why financial institutions offer "second home loans.

Differences from Normal Mortgage Loans

There are several important differences between a second home loan and a regular mortgage. Let's compare the main differences in the table below.

The main feature of a second home loan is that the interest rate is set higher than that of a regular mortgage. This is because financial institutions consider the risk of not being able to repay the loan for the purchase of a second home. The criteria are also stricter, requiring a stable income and a high level of repayment ability.

Screening Criteria for Second Home Loans

In order to qualify for a second home loan, borrowers must meet stricter screening criteria than for regular mortgages. The main screening criteria are as follows

1. annual income criteria

Many financial institutions require a stable and high level of income as a condition for applying for a second home loan. Generally, the standard is set at an annual income of at least 5 million yen, which is more stringent than for a standard mortgage loan.

2. repayment burden ratio

The repayment burden ratio refers to the ratio of annual loan repayments to annual income. Stricter repayment burden ratios apply to second home loans than to regular mortgages. In general, the combined repayment burden ratio of the existing mortgage and the second home loan must be within 30% to 35% of annual income. 3.

3. credit information

An applicant's credit information, including past repayment history and borrowing status, is another important screening item. If there are delays in repaying other loans or credit cards, it will be difficult to pass the screening process. In particular, if the applicant already has a mortgage loan, the repayment status of that loan will be considered important.

4. conditions regarding the property

There are also conditions for properties purchased with a second home loan. In general, the following conditions are established.

• The property must be used as a vacation home or second home (not for investment or rental purposes)
• Must meet certain building standards
• The property must be in a good location
• The property must have potential asset value in the future

Second House Loan Interest Rates and Loan Terms

Interest rates for second home loans vary by financial institution, but are generally set at 0.5% to 2.0% higher than regular mortgages; as of May 2025, variable interest rates are 1.0% to 3.0% and fixed interest rates are 2.0% to 4.0%.

Interest Rate Type

Second home loans, like regular mortgages, are available in several interest rate types.

Loan Limit

Loan limits for second home loans vary by financial institution, but generally the maximum loan amount is 70-80% of the property price. There is also a maximum loan amount, which ranges from 50 to 100 million yen at most financial institutions.

Advantages of Second House Loans

A second home loan has the following advantages

1. financing for the purchase of a second home is possible

The biggest advantage is the ability to finance the purchase of a second home, such as a vacation home or second house. Even if the property is not eligible for a regular mortgage loan, a second home loan may be available.

2. available for both new and used properties

The loan can be used for the purchase of used properties as well as new properties. In many cases, post-purchase remodeling and renovation costs are also eligible for financing.

(3) Long-term repayment is possible

Long-term repayments of up to 35 years are generally possible, reducing the monthly repayment burden. It is also easy to create a repayment plan that fits your life plan. 4.

4. group credit life insurance is available

Many second home loans offer group credit life insurance. In the event of an emergency, the remaining repayment is forgiven, thereby reducing the burden on the surviving family members.

Disadvantages of Second House Loans

While there are advantages, second home loans also have the following disadvantages

1. high interest rates

The biggest disadvantage is that the interest rate is higher than that of a regular mortgage. Generally, the interest rate is set about 0.5 to 2.0% higher, and the total repayment amount may be significantly higher in the long run. 2.

2. strict screening process

The screening criteria, such as annual income requirements and repayment burden ratio, are strictly set. In particular, if you already have a mortgage, your repayment ability will be checked more strictly. 3.

Mortgage deduction does not apply

The "mortgage deduction," which reduces income and inhabitant taxes, is not available for second home loans. Since tax benefits are not available, the tax burden is greater than for a regular mortgage loan. 4.

Limited number of financial institutions

Only a limited number of financial institutions offer second home loans. Therefore, the choice of financial institutions is limited, and it may be difficult to obtain a loan on terms favorable to you.

Key Points for Utilizing Second House Loans

The following are points to consider in order to make wise use of a second house loan. 1.

1. consider Flat 35

As an alternative to a second house loan, it is worth considering the use of "Flat 35". Flat 35 can be used to purchase a second house, and its major advantage is that it can be borrowed under the same conditions as a regular mortgage loan. However, since the loan is subject to self-occupancy, it may not be suitable for a vacation home that is used only on weekends.

2. compare multiple financial institutions

The terms and conditions of second home loans vary widely from financial institution to financial institution. It is important to compare not only interest rates, but also loan limits, repayment terms, fees, and other factors in a comprehensive manner.

3. prepare a down payment

In order to reduce the loan amount and the monthly repayment burden, it is advisable to prepare a certain amount of down payment. A down payment of 20-30% of the property price will increase the likelihood of being approved.

4. review your repayment plan

When taking out a second home loan, carefully plan a repayment plan that combines the loan with your existing mortgage. It is important to make a reasonable plan that takes into account not only the monthly repayment amount, but also the use of bonus repayments and future income fluctuations.

Key Points for Selecting a Second Home Loan

Here are some points to consider when selecting a second home loan.

1. interest rate type selection

It is important to choose an interest rate type that matches your risk tolerance, such as a variable interest rate if you can tolerate the risk of interest rate fluctuations, or a fixed interest rate if you are concerned about future interest rate rises. The choice should be made with an eye on long-term interest rate trends. 2.

2. confirm the contents of group credit life insurance

Many second home loans require the borrower to purchase group credit life insurance. It is important to confirm the details of the coverage and whether or not there are any special clauses.

3. early repayment fees

It is advisable to choose a product with low or no early repayment fees so that you can easily make early repayments when you have sufficient funds in the future.

4. loan disbursement period

Depending on the timing of your property purchase, the length of time it takes for the loan to be approved may be an important selection point. Selecting a financial institution with a short loan disbursement period will ensure a smooth transaction.

Points to keep in mind when using a second house loan

When using a second house loan, the following points should be noted. 1.

1) Risk of using the loan for other than the intended purpose

A second house loan is limited to the purchase of a house for personal use only. If you use the property for rental or investment purposes after purchase, the financial institution may consider it a breach of contract, and in the worst case, you may be required to repay the loan in a lump sum. 2.

2) Risk of Rising Interest Rates

If you choose a variable interest rate or fixed interest rate term option, there is a risk of an increase in the repayment burden due to a future rise in interest rates. It is advisable to prepare a certain amount of funds for repayment in case interest rates rise.

3. burden of maintenance costs

When you own a second home, you will need to pay property tax, management fees, repair fees, etc., just as you would for a regular residence. Maintenance costs can be a burden, especially for vacation homes that are not used frequently. Make a financial plan that includes these maintenance costs as well as loan repayment.

4. changes in collateral valuation

Depending on the location of the property, such as a vacation home in a rural area, there is a risk that the property value may decline in the future. It is important to make a purchase decision with an eye on the future value of the property as well.

Conclusion

A second home loan is a loan product specially designed for the purchase of a "second home" such as a vacation home or second house. Although the interest rate is higher than that of a regular mortgage loan and the screening criteria are stricter, it can be an effective option for obtaining an ideal home if utilized appropriately.

The following points should be kept in mind when using a second home loan.

• Interest rates are higher than regular mortgages, and the mortgage deduction does not apply.
• Screening criteria are strict and require a stable, high income and the ability to repay the loan.
• Comparison with alternative products such as Flat 35 is also important
• Use of the property for other than its intended purpose (e.g., renting) risks violating the contract.
• Maintenance costs and future value of the property must be taken into account in planning

Purchasing a second home is a major step toward improving quality of life and realizing a new lifestyle. The key to success is to gather sufficient information, make comparisons, and select the best second home loan for you.

Frequently Asked Questions

Q1: Can a second home loan and a mortgage be used together?

A. Yes , they can be used together. However, in most cases, the combined repayment ratio of both loans must be within 30% to 35% of your annual income to be considered. Existing mortgage repayment status is also subject to screening.

Q2. Is a second home loan eligible for the mortgage deduction?

A. No . Second home loans are not eligible for the mortgage deduction. Since the mortgage deduction is based on the condition that the house is "used for one's own residence," it does not apply to a second house that is not one's primary residence. However, if you transfer your residence to the second house and make it your primary residence in the future, the mortgage deduction may be applied with a product such as Flat 35.

Q3: Are there any advantages to using Flat 35 to purchase a second house?

A. The biggest advantage of using Flat 35 for a second house purchase is that you can borrow under the same conditions (interest rate, etc.) as a regular mortgage loan. The interest rate is lower than that of a second house loan, and the fixed interest rate for the entire term allows for a stable repayment plan. However, the loan must be used for personal use and cannot be used for rental or investment purposes. Also, if you are already using Flat 35, you cannot sign a duplicate contract.

Q4: Is there any way to reduce the interest rate on a second home loan?

A. It may be possible to reduce the interest rate by the following methods.

1. Compare multiple financial institutions and select the product with the best terms.
2. Prepare a larger down payment and reduce the amount of loan.
3. Borrow from a bank that you use as your main bank, such as your payroll transfer account or mortgage (you may be able to receive preferential interest rates)
4. Maintain a good credit history and improve your reputation in the screening process
5. Make comparisons with other products, such as Flat 35

Q5. Can I rent out a house purchased with a second home loan?

A. A second home loan is intended for personal use, so renting out the property is a breach of contract. If you intend to rent the house, you should choose a loan product that suits your purpose, such as a real estate investment loan.

Reference Information

• Japan Housing Finance Agency (JHF): Flat 35 Second House Application
• Financial Services Agency: Q&A on Mortgage Loans
• Ministry of Land, Infrastructure, Transport and Tourism: Support Programs for Home Acquisition

If you are thinking about purchasing a vacation home or second home, please contact INA & Associates, Inc. We provide professional advice on everything from choosing the best property to suit your lifestyle, to financial planning and loan selection. We can be reached at our Osaka Head Office, Tokyo Sales Office, or Metropolitan Sales Office. Please feel free to contact us.