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.
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.
There are several important differences between a second home loan and a regular mortgage. Let's compare the main differences in the table below.
| Item | Normal Mortgage Loan | Second House Loan |
|---|---|---|
| Purpose of Borrowing | Purchase of a home for one's own residence | Purchase of a second home, such as a vacation home or weekend home |
| Interest Rate Level | 0.3% to 1.0% per year | About 1.0% to 3.0% per year (higher than usual) |
| Screening Criteria | General screening criteria | Stricter (emphasis on annual income and repayment ability) |
| Maximum loan amount | Up to 90% of the property price | Generally 70-80% of the property price |
| Repayment period | Up to 35 years | Up to 35 years (depending on the financial institution) |
| Mortgage Deduction | Eligible | Not applicable |
| Financial Institutions | Many | Limited |
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.
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
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.
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.
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.
There are also conditions for properties purchased with a second home loan. In general, the following conditions are established.
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%.
Second home loans, like regular mortgages, are available in several interest rate types.
| Interest Rate Type | Characteristics | Risk |
|---|---|---|
| Floating-rate type | Interest rates fluctuate in tandem with market interest rates | Risk of increased repayment due to rising interest rates |
| Fixed Interest Rate Term Option Type | Interest rate is fixed for a certain period | Risk of interest rate rise after fixed period |
| Fixed interest rate for the entire term | Interest rate does not change during the repayment period | Not affected by rising interest rates, but initial interest rate is higher |
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.
A second home loan has the following advantages
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.
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.
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.
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.
While there are advantages, second home loans also have the following disadvantages
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.
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.
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.
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.
The following are points to consider in order to make wise use of a second house loan. 1.
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.
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.
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.
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.
Here are some points to consider when selecting a second home loan.
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.
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.
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.
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.
When using a second house loan, the following points should be noted. 1.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A. It may be possible to reduce the interest rate by the following methods.
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.
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.