Why Now is the Time to Invest in a Secondary Property

The COVID-19 pandemic has given all of us cabin fever. Especially with spring is upon us and temperatures warming, we’re all thinking about getting outdoors, feeling some sunshine on our faces, and breathing fresh air.

It’s the perfect time to consider purchasing a cottage, vacation home, or recreation property, especially if you’re working remotely. Why not work from a cottage, rather than from cramped quarters in an urban environment?

Imagine sitting by the water, swimming in a pristine lake, or casting a fishing line to catch some dinner. And, although we’ve been talking about warmer weather, there are pleasures to be had at a cottage or vacation home year-round: roaring fires in the fireplace or woodstove, hiking, cross-country skiing, and snowmobiling among them. 

A cottage offers a wonderful escape from your daily experience – and it can also be profitable if you choose to rent it for all or part of a season. In addition, you don’t need to shoulder the entire financial burden yourself – you can share ownership with family or a friend

The Wilson Team of mortgage professionals will be happy to guide you through the ins and outs of shopping and buying a second property. Why not start reaping rewards now?

Types of Vacation Properties

Vacation homes are classified as Type A or Type B for mortgage purposes.

A Type A cottage property is usable year-round: 

  • Is essentially a second home;
  • Has a full foundation (immovable);
  • Is a four-season property with central heating and year-round road access; 
  • Is located in an area that has reasonable and demonstrated resale value;
  • Has a well, municipal serviced or cistern for its water source. Water must be drinkable; 
  • Must, as a minimum, have a kitchen, 3-piece bathroom, bedroom, and common area;
  • Must be zoned and used as residential, rural, or seasonal; and
  • Is essentially a single unit. 

A Type B cottage property:

  • Requires a full foundation (immovable);
  • Doesn’t require winterization; 
  • Doesn’t require year-round access;
  • Doesn’t require a permanent heat source; for example, a wood stove, fireplace, stove, or heat blower is acceptable;
  • May have a floating foundation (sitting on blocks);
  • Need not have a potable water source – a lake water intake is acceptable; however, running water is required;
  • Can have indoor plumbing that is chemical, portable, or a holding tank; and
  • Access may be by boat only.

Valuing a Vacation Property

The amount of mortgage financing you require is dependent on the property’s value. The value of your vacation property is determined by an assessment, conducted every four years by the Municipal Property Assessment Corporation (MPAC). The newest assessment values were made available on Jan. 1, 2020.

If your property is a waterfront home, it will generally be more valuable than an inland cottage. MPAC will consider your property a waterfront lot if “it has direct access to a natural or man-made waterway such as a lake, river, channel or canal. Properties separated from the water by a right-of-way, private road or unopened road are also considered waterfront.”

Five key factors contribute to MPAC’s assessment and account for 85 per cent of the property’s value:

  • Location;
  • Square footage of living area;
  • Property’s age;
  • Lot dimensions; and
  • Quality of construction.

Other considerations include the body of water your property is located on, the amount of water frontage you have, the shoreline composition, sanitary services, and water source.

Mortgage Eligibility for a Vacation Home

If you are planning to purchase a Type A property, you must:

  • Have sufficient income to carry all debts, including carrying costs on your principal residence
  • Have a minimum credit score of 650 as the primary earner
  • Occupy the property yourself or have a relative live there rent-free

To cover down-payment costs, you may use funds given as a gift from immediate family members. 

Mortgage Availability

A Type A mortgage generally covers up to 10 acres of property. Generally, a Type A buyer is eligible for:

  • A conventional loan covering up to a maximum of 80 per cent of the property’s value
  • An insured loan covering up to a maximum of 95 per cent of the property’s value 
  • The opportunity to purchase the property and refinance it
  • A maximum amortization term of 30 years

If you are planning to purchase a Type B property, you must:

  • Have a minimum credit score of 680 for all applicants
  • Have no prior bankruptcy or judgments 
  • Make a down payment from your own resources – no gifts are allowed. 
  • Not use any third-party guarantors for qualification purposes
  • Have sufficient income to carry all debts, including carrying costs on the principal residence

Mortgage Availability

A Type B mortgage can cover up to five acres of property and is only offered for properties valued at $100,000 or more. Generally, a Type B buyer can expect:

· An insured loan (Sagen) covering up to a maximum of 90 per cent of the property’s value

  • An insured loan only, regardless of the loan-to-value ratio (LTV).
  • To be prohibited from refinancing the property
  • A maximum amortization term of 30 years
  • A maximum loan amount of $350,000

Don’t Worry, Be Happy

This may all sound complicated, but it isn’t. It’s not much different than buying a principal residence. The Wilson Team of mortgage professionals can walk you through the process to ensure you understand the benefits, the costs, and all the details.

It’s time to dream big and explore the possibilities. If you’re working from home, that home could be among the trees or on the shores of a pristine lake. Give us a call at 613-440-0134 or email us: kelly@wilsonteam.ca. We’re here to lend a hand.