Are you considering purchasing a quaint little lake cottage or perhaps a hunter’s cabin in the woods? Or maybe you are exploring the benefits of purchasing a house for your kids heading off to the Universities of Calgary or Edmonton? ‘Tis the season, so it’s a great time to explore the various options for mortgage financing when it comes to buying a second, non-rental property.
Second properties that are not going to be used as revenue generators, typically fall into two categories – Vacation Properties and Second Homes.
In today’s blog, we will address the Vacation Property.
If you are dreaming about that cottage on the lake, just outside of the Calgary city limits or the ski chalet in Canmore, then you’re thinking Vacation Property. Depending on the type of vacation home your are looking at, the lending guidelines vary slightly. “Type A” properties tend to be in popular areas, are accessible in all seasons and tend to have full amenities like plumbing, electricity, etc. If it’s a home that you could potentially live in all year ’round without having to boil snow over the camp fire to make coffee, it probably falls into the “Type A” category. As these properties are considered fairly marketable, the risk to the lender is low so most lenders will allow a minimum of a 5% down payment and refinancing up to 90% of the value of the home. Also, they will typically allow an amortization up to 35 years on these types of properties, which may help to keep the payments manageable.
If you have your heart set on that rustic cabin in the mountains that appeals to your inner Grizzly Adams, then you would be looking at a “Type B” property. Lenders consider these to be a riskier investment as they are not quite as marketable as the Type A properties so they will require you to have larger down payment, 10% or more depending on the shape of the property and the remoteness of the location. Your cabin can be a little rough around the edges but it still needs to be in good condition and at least have indoor plumbing. It doesn’t have to be winterized or accessible all year. Important points to keep in mind is that the lenders will usually only allow a 25 year amortization on these mortgages and refinancing is not generally allowed.
Another option for financing your vacation home is to utilize the equity in your primary home. If you don’t have a large first mortgage, it may be beneficial to refinance your current mortgage or obtain a Home Equity Line of Credit in second place and use the funds to purchase your holiday home, cash. This is often the best option when looking at properties without plumbing, very remote locations or properties located out of the country all together. Timeshares and rental pool properties are generally very difficult to find financing for aswell, so refinancing is a good solution for those situations as well.