No one can say “no” to the tranquility of a day in nature, in the comfort of a cottage, cabin, or another vacation home. Especially after the hustle and bustle of city life. That’s why it comes as no surprise many Ontario residents find that getting a vacation home is a valuable investment. It still requires securing financing via a mortgage if you do not have the means to pay for it in cash. I, Jodi Habel, am here to help you navigate your way around mortgages for cottages and vacation homes.
What are Cottage/Vacation Property Mortgages?
Cottage or vacation home mortgages are essentially loans to finance a secondary property that will not be your primary residence. Before you embark on securing financing for a cottage mortgage, it’s important to familiarize yourself with all the details of what this type of mortgage entails and the requirements.
One of the most valuable considerations to be aware of is the type of property you want to purchase. The words cottage, cabin, or vacation home are often used interchangeably. It does not matter what type of property you are purchasing (wooden cabin, stone cottage…etc) but what type it falls under when applying for a vacation home mortgage.
Cottages/vacation homes in Ontario fall under one of two categories: type A and type B.
Type A cottages
A vacation property that can be used year-round falls under this category. That does not necessarily mean it needs to be used year-round (it at least needs to be occupied one season a year). However, it does need to have the necessary means to be used year-round which includes: some form of central heating, running water, winterization, consistent plumbing and electricity.
Type B cottages
Properties of this type are typically lakeside cabins that don’t need to have central heating or running hot water. It simply needs a source for potable water and occupancy at some point in a year.
How Does A Cottage/Vacation Property Mortgage Work?
Applying for financing for a second property is a similar process to securing a mortgage for your primary residence, but you may find the requirements to be a bit more strict.
- It shouldn’t come as a surprise that a high credit score is something of a necessity when seeking financing for a vacation property.
- Like purchasing a primary residence the down payment requirements for a cottage mortgage can be as little as 5% down.
- It’s still best to have pre-approval for a mortgage at hand when shopping for a vacation property.
- Lenders can consider vacation homes as higher-risk properties which is why you may additionally face higher interest rates depending on the mortgage broker services you opt for.
Frequently Asked Questions About Cottage/Vacation Homes
I’m here to help bring straightforward answers to any lingering questions you have regarding how to get a mortgage on cottages. Here are some of the questions I get asked a lot:
How can I know if now is a good time to buy a cottage?
It’s best to wait until you find the right vacation home that meets all of your needs, at the price point that works best for you. Unlike a primary residence, a vacation home is less crucial and you can spare a few extra months of waiting for the perfect one.
Can I rent out the cottage in the off-season?
Yes, if you won’t use the home for an entire season you can list the space and rent it out for a few months. Allocating those earnings to your mortgage payments is a great way to ease the strain from your shoulders temporarily.
Why are vacation homes considered more risky ventures by lenders?
Cottages and cabins are often left unattended for the majority of the year (in the off-season). That means the property isn’t looked after as often and if it resides near a lake, for example, it can be vulnerable to natural occurrences like flooding, mold, insects, and anything else that can make the value of the property fluctuate.
If you are ever looking for a mortgage broker in Canada to connect you with financing for life’s biggest milestones, get in touch with me — Jodi Habel. I have 15+ years of connections, experience, and financial assistance in my toolbelt that are all assets for my clients when it comes to connecting them with the right mortgage.