Second homes account for a full 40% of all homes sold in America. According to a recent annual report by the National Association of Realtors (NAR), 27.7% of all homes purchased in 2005 were investment properties and 12.2% were vacation homes. About 65% of second-home owners surveyed by the NAR said they considered their second homes better investments than stocks, and 29% said they planned to buy additional properties within two years.

Cash-out mortgage refinancing and second mortgages are typically the ways homeowners finance second home down payments, home improvements and home construction on primary residences and second homes. A cash-out mortgage refinance involves refinancing an existing mortgage with a higher borrowed amount, which results in a single loan and loan payments that can be stretched over a long term. Cash-out refinances typically have lower interest rates than second mortgages, and can either be fixed mortgage rate loans or adjustable rate mortgages (ARMs).

A second mortgage is a subordinate loan on the same property. The main two types of second mortgages are fixed interest rate home equity loans and adjustable rate home equity lines of credit (HELOCs). A home equity loan is generally a lump sum loan, and a HELOC is a revolving credit line, similar to a credit card, where interest is only paid on the amount borrowed. Second mortgages provide homeowners with more flexible options when it comes to spending and repayment. Depending on the homeowner