Are you buying a cottage or house? Be prepared to consider mortgage alternatives


OTTAWA. After an initial influx of Canadians who bought a second property to escape the city during the pandemic, there are still many potential buyers willing to follow in their footsteps.

However, according to experts, borrowing a holiday home can differ from the usual home buying process in that lenders are looking at more than just your creditworthiness.

A report released by Re / Max in May found that 59% of those planning to buy vacation property next year are buying vacation property for the first time.

And while the company’s 2021 report showed that property prices are rising, it also says that 22 percent of those surveyed said lower interest rates increased their ability to buy.

Donna Murphy, mortgage agent for TGM The Mortgage Group, says it’s important to work with people who are familiar with the intricacies of cottage real estate.

“Make sure whoever you work with has your interests and knows what you are looking for and what your short and long term goals are,” Murphy said.

If you don’t have the money to buy vacation property right away, you can get a mortgage. Other options include refinancing an existing home to finance the purchase, or a combination of both.

Overall, Murphy says, the more a vacation home looks like a home, the easier it will be to get a mortgage, all other things being equal.

Things like affordability, winterization, and drinking water are key things lenders will look out for.

Toma Sojonki, a mortgage consultant based in West Vancouver, BC, says that sometimes refinancing your home is an advantage over getting a mortgage directly on vacation property.

“Some of these cottages and holiday homes have nuances that make direct financing difficult or impossible,” he said.

“If you have a home in the suburbs that is in high demand and meets the property requirements for the lender and is reviewed by an appraiser. In some cases, this is a much easier path. “

Hot housing markets in many of Canada’s largest cities have also expanded into the leisure market. Murphy says she has seen rising prices push encouraging buyers to look for locations that may be further from home, but are also slightly more affordable.

Murphy said each situation is unique, but she estimates that, on average, the changes in the mortgage stress test rules in June lowered the maximum mortgage amount borrowers can qualify for by about five percent – an amount that could matter on the hot market.

If you don’t comply with the new stress testing rules, you have options. Murphy says you might consider alternative lenders, but you should expect to have to pay more than the banks.

“And so it’s a very personal decision about how badly they want this cottage or recreational property,” she said.

This report by The Canadian Press was first published on July 15, 2021.

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