You, Too, Can Buy a Cottage: Mortgages for Vacation Properties, Both Waterfront and Landlocked
So, you want to buy a vacation home, but don’t have the cash to plunk down the full purchase price?
Don’t worry, the Wilson Team (wilsonteam.ca) of mortgage professionals has your back! We are experts
in mortgages tailored to suit the buyer’s needs, so you can rely on us to assist in making your cottage
dreams a reality.
Mortgages for vacation properties fall into two classes: Type A and Type B.
A Type A cottage property:
Is essentially a second home;
Has a full foundation (immovable);
Is a four-season property with central heating and year-round road access; and
Is located in an area that has reasonable and demonstrated resale value.
A Type B cottage property:
Requires a full foundation (immovable);
Doesn’t require winterization; and
Doesn’t require year-round access.
Vacation Property Value
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 will be available on Jan. 1,
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:
Square footage of living area;
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.
How Much Cottage Can You Afford?
Undoubtedly, you’d like to purchase that lovely Muskoka cottage once owned by your favourite
Canadian rock star! The real question is whether you can afford it. You can estimate the value of the
cottage you can afford using the amount of your planned down payment as a guide.
If you plan to make a down payment of $25,000 or less, use this formula to determine your maximum
purchase price: down payment / 5% = maximum affordability.
If your down payment will exceed $25,000, you’ll be able to determine your maximum purchase price
with this formula: down payment amount – $25,000 / 10% + $500,000.
With the estimate in mind, you can begin visiting affordable properties and thinking about financing and
the Wilson Team members are ideal partners in helping you access the necessary funding.
Funding Your Cottage Purchase
Buying a cottage requires money, as the MLS listings attest. Most people don’t have the cash on hand to
purchase a vacation property outright, so they look to lenders to help them finance the transaction.
The majority of buyers finance the purchase of a cottage by:
Refinancing your principal residence, removing enough equity to finance your purchase;
Using a home equity line of credit;
Obtaining a mortgage for the cottage property itself; or
Combining the aforementioned options.
In addition, ratehub.ca reports that many Millennials who couldn’t otherwise afford a cottage are
renting apartments in cities and putting their home ownership dollars into purchasing a cottage and
considering it a principal residence. (https://www.ratehub.ca/blog/millennials-are-using-this-mortgage-
The Wilson Team, with their thorough knowledge of lenders and mortgage options, can assist you in
determining which of these approaches makes most sense for you and in obtaining financing that meets
In deciding whether to approve a loan or not, lenders will look at the property itself and consider many
of the same factors that assessors examine, including its marketability. This means examining the
property’s proximity to major markets, whether there is year-round access, whether or not it’s a four-
season property and availability of a safe and consistent water source.
Of course, the major factor in deciding whether to loan you money revolves around your ability to repay
that loan. Lenders look at your income, your Gross Debt Service Ratio and your Total Debt Service Ratio,
your credit rating, your down payment and the cash you have available to meet closing costs. Often,
interest rates for vacation property mortgages are 0.1 to 0.2 per cent higher than a standard home
mortgage, since the house isn’t occupied year-round.
It sounds daunting, but it needn’t be stressful. We at the Wilson Team are ready to walk you through all
of the ins and outs of financing a vacation property and finding the solution that’s best for you. We’ll be
happy to help you banish your worries. Call us at 1-855-695-9250 or 613-440-0134. We’re here to help.