When you have this type of property, most of the “A” mortgage lending programs will not provide seasonal vacation home mortgage financing and the ones that do typically will fall in the 60% to 70% loan to value range, depending on the location and property itself.
So what do you do if you have a seasonal property lined up but only have 20% to down on the purchase?
Part of the answer will relate to what your long terms plans are going to be.
Under one scenario, you may be looking to upgrade the property so that it be could be categorized as 4 seasons at which time standard mortgage programs that offer up to 80% on refinancing applications could be accessed. A bridge loan in the form of a second mortgage can provide you with the additional capital to acquire the home and allow for the period necessary for making the improvements.
If the cottage is to remain seasonal, then you’re going to need a second mortgage source (typically provided by the vendor) to cover off the amount that the first mortgage holder is unable to provide. Keep in mind that under both of these scenarios, the debt servicing requirements for both the first and second mortgage are going to have to collectively work for the first mortgage holder.
Another option would be to look at a 80% private first mortgage to acquire the property, make the improvements to get it to 4 season status, and then refinance into a conventional mortgage at 80% loan to value. This option is going to cost you a bit more in interest, but if the time period to make the necessary upgrades is short, the incremental financing cost should be minimal.
One of the ways to offset the bridge financing costs is through your negotiations with the seller.
It can be difficult to sell a seasonal vacation home due to the higher down payment, or secondary financing required. Therefore, you may be able to negotiate better purchase terms to close the deal and cover off the additional financing costs you may incur through a private first or second mortgage.
The bottom line is there can be a number of ways to finance the purchase of a seasonal cottage through short term or cottage bridge financing where the objective is to covert the the mortgage financing into a lower cost, longer term debt instrument over time.
If you’re looking at a seasonal cottage acquisition and want to go over the available options, then I suggest that you give me a call and we’ll discuss all the potential scenarios together.
Here’s the rest of the article as well … http://www.canequity.com/blog/2011-05-majority-of-canadians-confident-in-vacation-homes-as-long-term-investments/
The survey focused on individual that had either recently purchased a vacation property or planned to purchase on in the next 24 months.
Especially in the upper end cottage communities, the real estate market can very closely reflect what you would typically see in urban areas in terms of growth rate and resale-ability.
As more individuals get prepared to take this step towards cottage type investments, the key element to making their property profitable over time is going to be the structure and rates provided by their cottage mortgage facility.
While cottage mortgages are not that difficult to secure, there can be considerable differences in rates and terms from one type of cottage to another and there can also be differences from one area to another to reflect a market that is stronger and maintains higher resale activity and interest.
And when you already own a primary residence, you can still qualify for a cottage or vacation home mortgage at very slow interest rates and low leverage, but you’re going to have to make sure you can meet the lender’s lending criteria in order to do so.
Outside of just buying a good property mortgage financing is going to be the next important element in terms of the amount of money you need to put down to acquire the property, the interest rate you’re going to have to pay over time, and the monthly debt serving that is going to impact your case flow.
In order to properly navigate through all the different twists and turns that can come into play when trying to place a cottage mortgage, your best bet would be to work with an experienced mortgage broker who can help you plan ahead of purchase the best way to approach mortgage financing so that when you locate a property you’re interested in, you’ll already know if its going to fit into your financing requirements.
The diversity of Ontario’s Cottage country also can produce a diversity in mortgage program options from one location to another.
Cottage mortgage programs will also vary by type of structure, its access to water and sewer, as well as where its situated in its local market. For instance, properties that are in a more populated or filled out cottage area are going to have a stronger resale market on average than properties that may be in the same general locale, but are sitting more on the outskirts in a more remote setting.
Mortgage lenders, both institutional and private, will have differing opinions of one cottage market to the next as well. Stronger markets will command higher loan to value ratios in certain situations and greater overall lender interest.
Bank and other institutional mortgage programs also offer insured products to allow you to acquire the same sort of higher leverage, lower cost residential mortgage that you could perfect in a larger urban area.
From a private mortgage point of view, the amount of lender interest and the mortgage rates and fees are going to depend largely on the resale market for similar assets. The more remote and unconventional the cottage property is, the less likely it will able to attract any type of financing.
While not common, there are also situations where cottage loans can be secured on land that is leased. National parks and first nation’s reserves can sometimes provide long term leases to occupants which do not allow a mortgage to be registered, but due to the strength and length of the lease in place, some lenders will provide a cottage loan on the value of the building only.
The key point here is that there can be considerable variability with Ontario cottage mortgage financing from one location to another and from one cottage structure to another.
So in order to make sure you’re getting the best available deal in your neck of the woods so to speak, the best solution would be to work with a mortgage broker who can help you more effectively navigate the cottage mortgage market.
If you have an Ontario cottage mortgage financing need, I suggest that you give me a call so I can quickly assess your situation and go over the cottage mortgage options most relevant for the area and property you’re looking at.
A cottage property is still a residential home, but typically with a much better view or approximate location to recreational activities.
As such, the mortgage interest rates you can secure for a cottage are not any different that what you can secure for a house in town with a few exceptions.
From an income and credit point of view, cottage properties are assessed as single family residential units when it comes to mortgage applications. And when “A” mortgage rates cannot be secured due to stated income or credit, secondary mortgage options need to be considered just like you would need to do with any residential purchase.
Where things are somewhat different with cottage or vacation homes has to do with how banks and other mortgage lenders view the actual property in terms of amenities and location.
Many of the cottage areas today are year round access locations where the overall market size and activity is comparable or better to what you would find in most urban areas. And under this scenario, there is typically no difference in the mortgage rates you can secure.
But when cottage properties are located in more remote locations or do not have running water or sewer, then the cottage mortgage requirements are going to be more stringent and the cost of financing higher.
Banks and other mortgage lenders also recognize that many families that own a cottage also have a separate primary residence that may have a mortgage already in place. To accommodate these situations, mortgage programs allow for a single family to qualify for more than one mortgage without having to pay a higher interest rate, provided that they can qualify for both mortgages with the same reported income, net worth, and credit profiles.
There are definitely some different strategies that can be employed to get better cottage mortgage rates in certain situations. The key thing to remember is that each vacation property will be somewhat unique and a certain application approach for one cottage may not work for the next one.
If you’re looking to acquire a cottage or refinance an existing cottage mortgage, I suggest you give me a call so I can quickly go over your situation and provide relevant mortgage financing options we can go through together.
Find and securing cottage mortgage financing can be difficult for many situations, but can be particularly hard at times if you’re trying to get bank mortgage rates on a seasonal cottage property.
In many cases, the seasonal cottage properties will not even be considered by what we would refer to as “A” mortgage lenders and dropping down to a “B” institutional option or even a private mortgage option is going to be more expensive with respect to the interest rate and the long term debt service.
There is a way around this, but you need to be working backwards so to speak from the requirements of the mortgage programs that will consider seasonal cottages in the first place. Too often borrowers believe that if they find that perfect vacation spot that there will be a way for the larger mortgage lenders to fit your potentially unique request into their programs.
Unfortunately, lenders are historically inflexible on changing any of their requirements for a specific type of asset and loan program, so if you don’t fit the box you don’t get funded and may have to settle for a higher interest rate option.
The good news is that there are traditional “A” lenders that will consider seasonal properties under the following two key conditions.
First, the property needs to have running water and septic set up and operational. Second, the borrower needs to be able to qualify for Canada Mortgage and Housing Insurance.
There will be other lesser requirements, but bottom line, you can still get excellent mortgage rates on your vacation property if you figure out your financing approach “before” you start looking at cottages.
The key is to work with a mortgage broker to get pre qualified for an institutional mortgage on a seasonal cottage property in a particular area. That way, you’ll be well versed in what the exact requirements of the financing program are and can use this information as a pre screening tool when looking at properties to buy.
If you’re currently looking for a cottage property, have a one that requires mortgage financing, or are just planning ahead, please give me a call so we can get a plan in place that will get you financed and into your vacation home so you can start enjoying the summer months.
Ah yes. It looks like spring has arrived in Ontario.
And with spring fever comes the cottage season as well as cottage construction, refinancing, and buying and selling of existing cottages.
Especially in Ontario, where we have a very well established cottage market, the mortgage options available are considerable as well as the various financing strategies you can consider to get a mortgage in place that meets your needs.
The challenge is that almost all cottage mortgage applications require somewhat of a customized mortgage financing solution depending on their location, resale market potential, and the financial profile of the borrowers.
And while there are lots of lending options, it can be easy to secure what I would call a sub optimal mortgage that allows you to close a deal or get refinanced, but is potentially not the best option that was even available to you in the market place, creating unnecessary costs for you over time in lender fees, higher interest rates, and the need to refinance in the future sooner than later.
This is where utilizing the services of a mortgage broker, especially one that’s done some cottage financing, can provide great value to you. As a mortgage broker myself, I am definitely biased in this regard, but I do believe that the knowledge and experience you can put to work for you can create a significant financial benefit that in most cases doesn’t cost you anything as most cottage lending scenarios have the lender paying the broker directly.
The key is to pick a mortgage broker that you are comfortable with and can work through the different scenarios with you until you come up with a solution that meets your requirements and takes advantage of the best offers in the market for your property and situation.
If you’re going to be looking for a cottage property this summer that will require mortgage financing, I recommend that you give me a call before hand so I can review your requirements and financial profile and suggest different cottage financing strategies to consider. This can greatly assist your shopping process by giving you a better perspective of how certain types of properties can be financed in certain areas of cottage country.
These programs will allow you to qualify for an insured mortgage that can provide up to 95% required financing for the purchase of a cottage property.
The mortgage applicants would be required to have sufficient income to meet the debt servicing tests for the both properties combined and the home owner or a family member would be required to occupy the residence ( basically, the cottage property could not be used as a rental property).
For higher income families that are looking to invest in larger, year round cottage properties, these programs can be a great fit in that higher leverage can be achieved for very reasonable interest rates.
This type of mortgage financing can also be used for purchasing a condo property as a second home for the kids to live in while they go to university or work away from home. As long as an immediate family member is residing in the home and its not being used for a rental property, this second home would likely qualify under these programs.
In addition, both homes can also be financed through higher ratio insured mortgages provided that the borrowers can pass the debt servicing requirements and the possess the minimum level of acceptable credit.
If you’re interested in purchasing a cottage property, you may want to first inquire as to whether your existing home mortgage provider has this type of program. If they don’t, and your mortgage is open or near the end of its interest term, it may make sense to first move your mortgage over to a lender offering the two home program prior to shopping or trying to secure a cottage property.
This may take a bit of work to arrange, but if you’re able to secure higher mortgage leverage in the process for a reasonable cost of financing, you could either secure your dream cottage for less money down or start looking at higher priced properties that now can be financed through a second insured mortgage.
If you have a cottage mortgage financing need, I suggest you give me a call so that I can quickly assess your situation and provide relevant options for your consideration.
First of all, cottage mortgage lenders will focus their programs on different regional areas. Cottage markets can be very different one province to another, and even within the larger provincial cottage areas. This is due to the fact that each cottage region is its own distinct market with potentially different resale market dynamics that can impact the lender’s view of the underlying security for the mortgage.
So while you may be looking in a market that provides great deals, it may not have the same amount of mortgage program selection as other areas.
For higher loan to value mortgage financing and low mortgage rates, the cottage property needs to have residential zoning, an electric or gas heating system, and access to all weather roads. The more your target property conforms to what we would characterize as a traditional residential development, the more mortgage programs will be available for you to consider.
So if you’re seeking 95% cottage mortgage financing and prime plus interest rates, then you need to be targeting properties in solid resale markets where the developments are well established and provide year round access and living.
If you’re interested in a more obscure property, say something with a large square footage, sitting on a large acreage with some form of shared access among neighbors, then it becomes even more important that the target property is in a well established market in order to still be able to obtain high leverage and excellent repayment terms.
As you start to drift away from the established markets, your mortgage options can drop dramatically and even though you may be able to lock down a great deal subject to financing, keep in mind that the down payment and cost of financing could both be higher than you anticipated.
While cottage financing tends to be a well serviced mortgage market for the most part, there can still be challenges in getting the mortgage terms and conditions you’re looking for. This is where the help of a mortgage broker can truly be invaluable to you.
If you’re looking to purchase or refinance a cottage or resort property, I suggest that you give me a call so that we can go over your options and determine your best course of action.