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Second home mortgage rates are based on a variety of factors, including the borrower's creditworthiness, the loan-to-value (LTV) ratio, the loan amount and the term of the loan, the property type and overall market conditions. Here’s how each factor weighs in:

• Creditworthiness: A higher credit score and a lower debt-to-income (DTI) ratio yield a better interest rate.
• Loan-to-value (LTV) ratio: The LTV is the ratio of the loan amount to the appraised value of the property. A lower LTV indicates a lower risk for the lender, which can lead to a lower interest rate. Second-home lenders typically prefer a lower LTV, ideally below 80 percent.
• Loan amount and term: The amount and length of the loan also affect the interest rate. Higher loan amounts and longer terms can translate to higher interest rates.
• Property type: Some condos can be difficult to finance, for example, and a lender might also consider rental income generated by the second home.
• Market conditions: Mortgage rates are influenced by the state of the economy (and especially yields on 10-year Treasury bonds), the Federal Reserve's monetary policy and market demand. Among the factors affecting mortgage rates, this is the one the furthest out of your control.

A second home mortgage helps pay for a second home or vacation home. Unlike the mortgage for a primary residence — where you live most of the time — a second home mortgage typically requires a larger minimum down payment and has a slightly higher interest rate, and can have stricter requirements when it comes to cash reserves and debt-to-income (DTI) ratio.

A mortgage for a primary residence, for instance, might only require 3 percent or 5 percent down, while a second home mortgage might require at least 10 percent. In addition to that, you’ll likely need two to six months’ of reserves, depending on your credit and financial profile, to ensure you’re able to cover mortgage payments on both your primary residence and second home.

Your DTI ratio, meanwhile — which helps determine your ability to repay the loan — might max out at 43 percent, although some lenders cap it at 36 percent. On primary residences, there’s usually flexibility up to 50 percent.

Mortgage rates are often somewhat higher on second home mortgages — typically by as much as 0.5 percent, 0.75 percent or 1 percent more. This is in part to compensate for the risk of a second home, which you’re much more likely to walk away from if you weren’t able to make payments compared to your primary residence.

Whether to take a second home mortgage is something of a personal choice. Whatever your motivation, there are various ways to pay for a second property: You could tap the equity in your primary residence, borrow against your investment portfolio or pay cash. For the latter, if you have that financial flexibility, the decision comes down to what kind of a deal you can get on a second home mortgage. If the rate and terms are attractive, then it might make more sense to take out the loan.

You can refinance a second home mortgage, but as with any refinance, it’s crucial to ensure the savings outweigh the closing costs. Because interest rates are higher on a second home mortgage, it can take you longer to recoup these costs. You might also need more equity in your second home in order to refinance and, as with the initial loan, sufficient cash reserves.