Buying a second home is an exciting financial milestone — whether it's a lakeside getaway, a mountain cabin, or an investment property meant to generate steady income. But in today's housing climate, far fewer buyers are choosing to finance those purchases with mortgages. According to Redfin, just 86,604 mortgages were issued for second homes in 2024, the lowest number since 2018 and a sharp drop from the peak of more than 258,000 in 2021.
That decline is partly driven by higher interest rates, which have discouraged many from borrowing altogether. Instead, an increasing number of well-capitalized buyers are paying cash — a move that speeds up the buying process and appeals to sellers eager for quick, secure deals. But for others, tying up that much liquidity can feel risky, especially in an uncertain economy. The key question is whether it's smarter to pay cash for your second home or finance it with a mortgage — and the answer depends on your financial goals, tax situation, and appetite for flexibility.
Paying Cash: Speed, Savings, and Simplicity
For buyers who can afford it, paying cash offers an undeniable sense of freedom. According to the National Association of Realtors (NAR), about 28% of all home sales last summer were all-cash transactions, and roughly 16% of those involved second homes. Even as that share slipped slightly to 25% by year's end, cash deals remain a significant force in the market.
The advantages are clear: no interest, no lender fees, and no waiting for underwriting or appraisals. Paying in full can save tens or even hundreds of thousands in financing costs over time. For example, a $400,000 second home purchased with a 6.5% mortgage would cost roughly $819,000 over 30 years — with more than half of that total going toward interest. Paying cash avoids that entirely.
Cash buyers also enjoy negotiation power. Sellers are often more willing to lower their price or accept a cash offer quickly since it removes financing uncertainty. The closing process is faster, and owning the property outright offers immediate peace of mind.
However, paying cash has trade-offs. It can significantly deplete savings, leaving little room for unexpected expenses such as repairs, taxes, or medical emergencies. It also eliminates potential tax deductions — second-home mortgage interest is deductible within certain limits, an advantage you forgo with a cash purchase. And while owning the home outright builds equity instantly, it ties up funds that might otherwise earn higher returns in the market or other investments.
Using a Mortgage: Flexibility and Financial Balance
For buyers who prefer to maintain liquidity, financing a second home with a mortgage can be the more strategic route. Even with rates in the 6% range, borrowing preserves capital for other priorities — such as renovations, investment opportunities, or simply maintaining a healthy emergency fund.
Mortgages also come with tax benefits. Homeowners can deduct mortgage interest payments up to IRS limits, which can offset some of the costs of borrowing. A second loan can also enhance credit strength over time, as consistent on-time payments demonstrate reliability to future lenders.
Still, there are drawbacks. Taking out a mortgage means committing to years of interest payments and monthly obligations — something that can strain finances if you're still paying off your primary residence. Closing can also take longer and involve more paperwork, appraisals, and fees, from loan origination to underwriting.
Choosing the Right Path
The decision ultimately comes down to your financial picture and comfort with liquidity. If you have ample savings and want to avoid debt, a cash purchase offers clarity, savings, and immediate ownership. But if you prefer to keep more flexibility, benefit from tax deductions, and maintain access to your funds, financing your second home could be the wiser move — even if it means paying interest over time.
Experts often recommend a hybrid approach: put down a large cash payment to reduce the loan amount while retaining some reserves. This balances both advantages — smaller monthly payments and greater financial security.
Whether you opt for cash or credit, buying a second home is a major decision that should align with your long-term goals. Take time to assess your finances, explore lender options, and weigh how much liquidity you're comfortable parting with. A dream home should offer freedom and enjoyment — not financial stress.
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