Camp, cottage, or a cabin – call it whatever you like, but when the temperatures start to rise, we all dream about sitting on the dock, as in the movies, at a place we own.
However, if you do not possess the money to buy one straight away, you will need to borrow the money.
The process of qualifying for and applying for a mortgage is identical, but the lenders will look at more things when evaluating a property before lending you the money for buying a cabin.
Barry Gollom, vice-president of lending and mortgages at Canadian Imperial Bank of Commerce, reveals the banks will look carefully at the property being purchased when deciding the amount of money they will lend. He adds the lenders look at the closeness to a major market, the location, and the access to it.
The lenders usually want the cabin to be an all-season property to lend you the money, but he adds some of them will fund three-season cottages. He says is best for the property to be marketable and not be accessible only by water.
If you do not put down at least 20%, you will need mortgage defaulting insurance as a regular home purchase.
Nevertheless, CMHC modified its rules last year so it would not cover mortgages on a vacation property anymore. Now, you will need to use a private mortgage insurance company that can offer you the needed coverage if the lender demands it due to the amount of the down payment.
The insurers can have bounds on the sum they will cover for a second home, depending on its features.
You can use a home equity line of credit or refinance your home if you have already paid off sufficient of it to utilize it to borrow the money you need. It is common for buyers to use a combination of paying through their vacation and home property to purchase it.
You cannot finance the new purchase if you had made a small down payment when you bought your home and have not possessed for a long period.
Joe Walsh, a mortgage broker in Toronto, states it is on the lenders to decide whether you can pay off the debt no matter how you decide to pay for your purchase.
Gollom emphasized it is vital to buy a cabin that fits with your complete financial plan. This decision, he adds, requires thorough planning and the buyers need to understand the bigger consequences of the buying a vacation home.
Two Types of Cabins: Types A and B
Type A Cabins: Type A is a cabin with year-round access. It is a winter home with a constant heat source and drinkable running water set on a lasting base below the frost line.
You can mortgage these cabins like mortgaging a permanent property, with at least 5% down payment, variable and fixed terms with entitlement to repay once equity has been constructed.
Interest rates are 0.10-0.20% bigger than a usual mortgage mostly due to the not ‘owner-occupied’ year round. If your down payment is 20% or less, the premium of the insurer must be included, as in the standard mortgage.
Type B Cabins: Type B is a cabin with periodic access, and no constant heat source but it has running water and lies on a floating base (pilings or concrete blocks). You can also mortgage these cabins with at least a 10% down payment, variable and fixed terms.
Type B cabins are not qualified for repayment at any time and the highest property cost cannot surpass $350,000. Interest rates are also 0.10-0.20% bigger than usually fixed-rate mortgages. Like type A cabins, if the down payment is 20% or less, the premium of the insurer must be included.
Note: You cannot use cabins and second homes for rental or investment purposes. The lenders do not accept timeshare properties or rental pools in this program.
Getting a Mortgage for Your Cabin
Repaying for your main residence and utilizing the equity to buy your cabin is the easiest financial solution.
Up to 80% of the price of the home can be repaid. The rate will be smaller since you remortgaged the permanent home and do not have a mortgage owed on your vacation home.