More and more Canadian’s are buying second homes for many reasons.
It could be for leisure which can include buying that that dream cottage, a ski chalet , or a winter chalet. For others, career or family demands fuel the desire for a second home: for business stays, or to shelter the university student studying in a distant community, or for an elderly family member to live close by.
Although CMHC eliminated the Second Home Program recently, other insurers – Genworth and Canada Guaranty – still offer the program, designed to help you borrow up to 95% of the home’s value.
Below are some questions to keep in mind when you finance a second home.
Can you afford a second home mortgage?
This is the most important question you have to ask yourself. If you are planning to purchase a second home, you’ll want the best possible financing for your new real estate investment. There’s no question that financing is available. But a mortgage broker can help you figure out exactly how much second home you can comfortably afford. Mortgage interest rates are still at a near all-time historical low, so this is a great time to begin that conversation.
What are your financing options?
The insured Second Home Mortgage program mentioned above has been a big breakthrough for Canadian second-home buyers. A property purchased for a family member attending college or university away from home, if insured, allows you to put as little as 5% down. The program is also popular as a means of purchasing a vacation property.
There are a few things to know here:
- Either the borrower must occupy the property for at least some part of the year, or a family member must occupy the property, on a rent-free basis. This is not a program for purchasing rental properties. If you’re looking to purchase an investment property, a mortgage broker can help with that too… but it’s not the same as purchasing a second home.
- The property must be winterized and be accessible for year-round occupancy. Be careful with island properties; they should have year-round bridge or ferry access.
- The second home must be located in Canada. Note, too, the Second Home Program can’t be used to purchase time-shares or similar rental pools.
What do the mortgages look like?
By far, your best bet is to talk to a mortgage professional with access to a wide range of lenders. The mortgages for second homes can vary widely in the rates and requirements.
Can I leverage my existing equity in my primary home?
This is an option that your mortgage pro can help you look at. This involves a cash-out refinancing of your existing home mortgage, with a higher borrowed amount. Instead of waiting and saving years for a second home, you can access money based on the value of your primary residence and your present financial profile to help you finance a second property.
A second mortgage for a second home?
Is this the right option for you? A second mortgage is a very common way to use your home equity, enabling you to purchase a second home more quickly. The main thing is that you must have the funds and cash flow to comfortably make both mortgage payments. Your mortgage professional will work out the best terms for you.
Want to look into this further?
If there’s a family cottage in your dreams or a student condo in your plans, this is the time to get serious about a mortgage plan to make it happen. Reach out to us, The Wilson Team is also happy to chat and go over all of your options.