Buying a Second Home? It’s Simpler Than You Think!
Expanding your lifestyle to include a recreational property like a cottage, chalet or cabin is a simple process
By Steve Harrison
mortgages.ca
Buying a Second Home
People tend to think securing financing for a second property will be an overwhelming and complicated process. But if you’ve already purchased a property (which, of course you have, this is your second property), you’re already very familiar with the process.
Process and rates are the same
For one, the approval process for buying a second property is similar to that of buying a primary residence, and the minimum downpayment is the same — which can be as little as five per cent of the total purchase.
Sometimes people are concerned they won’t be eligible for the same rates on a mortgage for a cottage, but a mortgage for your cottage is just like a mortgage for your primary home. Although purchasing any home with less than 20% down would have a mortgage insurance premium, there would not be a rate premium just because you’re buying a second home/cottage.
For some of our younger clients, the idea of buying a cottage is increasingly becoming more attractive. They choose to live in a smaller condo during the week, then spend weekends and holidays in a recreational home outside of the city. It’s a lifestyle choice that’s especially appealing for people who have the option to work remotely.
Refinancing to increase wealth
One great method to help with the down payment of your second home is to refinance the mortgage on your first property. Some clients don’t realize this is a viable option, but it’s a great way to use some of the capital in your current home to help land your dream vacation home.
Example:
Let’s say you’ve bought a home for $700,000 and you had a mortgage of $560,000. And now that home has increased in value since you bought it and is now worth $1 million, meanwhile you’ve got $500,000 left outstanding on your current mortgage.
That means you’ve got $500,000 of equity in your home. Assuming the person qualifies, they could refinance their current property to 80% (800k), which would give them 300k in cash to use towards a vacation home. With the current refinancing rules, you’ll always have to leave 20% equity in your home.
Using a home equity line of credit
Alternatively, you can consider using a home equity line of credit to help finance the purchase of your second home. For example, one of our clients recently used a home equity line of credit to buy a cabin. They had already refinanced their home to have the line of credit available, and when they found a great deal on a cabin up north, they were able to jump on it right away.
They paid cash for the cabin using the line of credit, which is a slightly higher rate than a mortgage on the cabin, but it worked for them and depending on your situation we can help you figure out what would work for you. Which leads me to my last point:
Make Sure to work with a licensed broker
As licensed mortgage brokers, we help our clients get the mortgage that’s right for them by negotiating on their behalf with banks, credit unions, and other mortgage providers for the best rates and products. Our services are free to home buyers, and our fees are paid by lenders. You have nothing to lose and great insights to gain!
Are you considering buying a second home? Apply Now or Contact Us via phone (647-795-8700) or email ([email protected])