There is no doubt that Canadians have a great “backyard” to explore. With unmatched wilderness, countless lakes, and lakefront property that is available it’s no wonder that many people aspire to own a weekend get-a-way or their little piece of paradise.
Vacation homes can vary from condos to country estates, from seasonal use and island cottages to four season homes. Each vacation property is unique, thankfully there are mortgage products specifically designed for these types of properties that can make owning one easier than you may think.
Today, with the help of Canada’s mortgage insurance companies Canada Mortgage and Housing Corporation (CMHC) and Genworth, Canadians can purchase a vacation home with as little as a 10% down payment. If a borrower can come up with 20% down payment the mortgage will not need to be insured with Canada Mortgage or Housing Corporation (CMHC) and Genworth, and each lender will have their own guidelines for lending.
There are a couple things to consider when planning the purchase of your cottage—assuming you will be purchasing with less than 20% down payment and require your mortgage to be insured.
First, the cottage must be purchased as “owner-occupied” meaning the purchaser must intend to occupy the cottage at some point during the year. This eliminates the ability to purchase a cottage solely as a rental property. The cottage must also be one single unit.
Second, the down payment typically must come from the borrowers own savings either from a savings account, RRSP withdrawal, proceeds from the sale of another property, or the refinancing of another property owned.
Third, the amortization period of the mortgage cannot exceed 30 years with CMHC and 25 years with Genworth.
Fourth, CMHC will not consider properties that are seasonal use or have seasonal access only, Genworth will allow for seasonal use and boat access only properties.
Fifth, borrowers must have good credit and be able to afford the expenses of the cottage property as well as their principal residence; this includes the mortgage payments, taxes, condo fee’s.
Sixth, investment properties, timeshares, life leases, and rental pool properties are not eligible under these insurance programs
Regardless of how much down payment you have when you purchase your vacation home there are many factors to consider, each insurer and lender have their own set of guidelines and rules when establishing a cottage mortgage.
There may also be other creative ways to purchase your dream vacation property such as using the equity in your existing residence. A complete evaluation of your situation will make sure that the vacation home you purchase is matched best with the insurer and lender that will provide you the best mortgage for your needs.