As an Ontario based mortgage broker, I get a lot of mortgage applications from clients seeking Canadian cottage mortgage financing from nearby cottage country.
And that’s not to say there aren’t lots of cottages and vacation homes in other parts of Canada requiring financing, but I sure see a lot of activity from right here in Ontario.
Cottage mortgage financing can be trickier than a traditional residential home mortgage sought for purchase or mortgage refinancing for a number of reasons that I’ll go over in a minute.
But pretty much like anything else related to seeking a mortgage, your best starting point is to give me a call so we can go over your situation and options together, helping you avoid any frustrations and delays in the process.
Cottage properties that more resemble traditional residential homes in that they are in well developed areas and are occupied on a year round bases have more financing options available to them in terms of mortgage products and the related rates and terms. As cottage homes move away from what a lender would view as a “year round” cottage, the mortgage options decrease. This is largely to do with how the lender values the underlying security offered by the property.
In situations where a cottage is located in the middle of nowhere, the cottage property will be harder to resell and it will also be harder to determine what the resell value may actually be. So mortgage lenders end up taking a more conservative approach towards properties that do not exist in well established and active markets.
A second aspect of cottage financing is related to your ability to service debt, especially if you already have an existing mortgage on your primary residence. A cottage mortgage can in many cases be an additional mortgage held by the same family, so the percentage of your available income that is allowed to service a mortgage payment can be easily exceeded with a request for a mortgage for a cottage property.
Cottages tend to classed as either Type A or Type B properties for mortgage purposes.
Type A properties have a residential zoning and are used for residential purposes. These properties can be in rural areas and seasonally used. They must have a working central heating system and road access that is available year round.
Type B properties are largely those cottages that don’t meet the requirements of Type A. For instance, central heating is not a requirement, and they do not have to have year round road access.
Type A properties can receive a mortgage up to 95% of the value of the cottage with favorable interest rates and terms while Type B properties tend to have higher rates and typically aren’t eligible for mortgage financing above 75% of the value of the property.
Mortgage lenders can focus their programs on a more regional basis with different areas of Canada having access to similar or completely different programs and lenders.
Amortization periods do not typically go beyond 25 years and in some cases additional fees may be required to secure financing from some sources.
As a direct alternative to bank and institutional lenders, there are also private mortgage financing solutions to consider as well.
So while there are some notable differences between cottage financing and residential home mortgages, the cottage and vacation home mortgage market is significant in size and pretty well services by mortgage companies in most regions.