What You Need to Know About Financing a Vacation Home

Atrina Kouroshnia
April 1, 2015

With the summer travel season approaching, you may be eying a vacation property that would allow you to escape the everyday grind. Assuming you have good credit and you’re not maxed out on your primary home’s mortgage, that lakehouse or mountain cabin could be well within your reach.

Many Canadians purchase secondary properties in the US or elsewhere, and there are special mortgage and tax considerations that apply in those situations, so you’d want expert advice tailored to your specific circumstances. For this piece, we’ll focus on what you need to know about getting a mortgage on a second home within Canada.

Qualifying for a Mortgage on a Second Home

Most lenders will allow you to purchase a second home with as little as 5 per cent down, meaning you’d get a mortgage for the remaining 95 per cent. Lenders typically define a second home as a weekend getaway home or a cottage with year-round access that you or family members occupy. It could even be a property that you occupy half of the time (for instance, if you work in a different city than your primary residence, you might commute to your primary home on weekends and spend weekdays in your second home).

Qualifying for a mortgage on a second home is essentially the same process as qualifying for a mortgage on a primary residence. Lenders will look at your income, employment history, debt and credit history before qualifying you for a mortgage.

If your plans change in the future and you decide to rent out your second home, you could do that (provided your strata or homeowner’s association allows it), but you would not be able to use any of the rental income to qualify for that initial mortgage.

Insuring a Mortgage on a Secondary Home

With a down payment of less than 20 per cent, you’re required to have mortgage insurance. Last May, CMHC announced that they will no longer insure second homes. However, Genworth and Canada Guaranty will still insure one second home per owner.

If you’re considering purchasing a second home, a mortgage professional can run the numbers to see how much house you can afford and also calculate how the payments would fit into your overall budget.