Your financing options for the purchase of a second home

Almost 60% of Canadians interested in buying a cottage are doing so for the first time in 2021. (Photo: The Canadian Press)

Since the initial rush of Canadians who bought a second home to escape the city during the pandemic, several potential buyers are still looking to emulate them.

However, the borrowing process for a cottage may differ from that for buying a typical home, experts point out, since factors other than creditworthiness are scrutinized by lenders.

According to a report released by the real estate brokerage firm Re / Max in May, 59% of those who are considering purchasing a recreational property next year are their first purchase for such properties.

And while the firm’s 2021 recreational property report found prices were on the rise, it also reported that 22% of those surveyed believed falling interest rates had increased their purchasing power.

Donna Murphy, Mortgage Agent at TMG The Mortgage Group, emphasizes the importance of working with people who are familiar with the ins and outs of second homes.

“You have to make sure you are working with someone who has their best interests at heart, and who knows what you are looking for and what the short and long term goals are,” said Murphy.

Several financing choices

Those who don’t have the cash to buy a cottage may be able to get a mortgage. Other options include refinancing an existing primary residence to finance the purchase, or a combination of the two.

In general, says Murphy, the more a cottage looks like a regular house, the easier it will be to get a mortgage, all other things being equal.

Things like accessibility, winterization, and clean water are key things lenders will look for.

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Toma Sojonky, a mortgage consultant from West Vancouver, British Columbia, says there is sometimes an advantage to refinancing your home rather than getting a mortgage directly on a second home.

“Some of these cottages and recreational properties have their kind of inherent characteristics that will make it difficult, if not impossible, to fund directly,” he said.

“For those who already have a home in the suburbs that is highly marketable and meets a lender’s real estate requirements and is verified by an appraiser, this can be a much easier path in some cases.”

Real estate markets are booming in many of Canada’s largest cities, which has spilled over into the second home market. Ms Murphy says she has seen rising prices push potential buyers to seek out places that are a little further from home but are also a little more affordable.

While every situation is unique, Murphy estimates that, on average, June’s changes to the mortgage stress test rules reduced the maximum mortgage amount borrowers can claim by about 5%, which could make the difference. in an effervescent market.

For those who do not qualify under the new stress testing rules, there are options. Ms. Murphy notes that it is possible to use alternative lenders, but that you should expect to pay more than with the banks.

“Determining how far you are willing to go to obtain a cottage or a recreational home remains a very personal decision,” she said.

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