After so many months of staying at home and being cooped up, many Ontarians have been searching for a recreational property. Back in May, RE/MAX released a Cottage Trend report and found that due to this high demand we were likely to see a 30% increase in recreational markets. Read the full report here: Cabin & Cottage Trends.
If you are in the market for a Cottage this year there are things you should be aware of. It’s also a good idea to have the help of a local realtor who can advise of flood areas and have great information on water, septic and of course the local lakes etc. But there’s more to it than that. How do you know if you can afford a recreational property or Cottage?
What Type of Property does this fall under?
Cottage and Lake Cabins fall into two types of properties. Type A and Type B.
Type A Properties:
Easiest described as all season cottages. Usually has year- round access to the property, is winterized with a permanent heating source. Type A properties have running potable water set on a permanent foundation lying below the frost line. You can still get Cottage Mortgage Financing, usually at a higher Interest Rate.
Type B Properties:
Type B Cottages are considered seasonal and not all year residences. These are properties that can have seasonal access, no permanent heating source, no running water and could sit on a floating foundation (Concrete block or Piling). You can get Cottage Mortgage Financing, usually at a higher Interest Rate.
A very popular way to afford financing on a Cottage is to use the equity you have in your home. Setting up a HELOC (Home Equity Line of Credit) could pay the down payment or full purchase amount of the Cottage. You can extend credit up to 80% of the value of your home.
How Much Down payment do you need?
You can purchase a Type A or Type B property for as little as 5% or 10% down. If you put under 20% you will still be subject to Mortgage Default Insurance. Same as it applies on first residential homes. You can buy a second home with as little as 5% up to 500K, 10% up to $999,999.00 and anything over 1M will require 20% down.
If you put over 35% down, typically both Type A and Type B properties would be approved for Cottage Mortgage Financing. Check out Scotia’s Secondary Home Financing Program.
Fractional Ownership cottages such as timeshares, will not qualify for any type of Mortgage Financing.
Waterfront properties can be harder to Finance:
Waterfront properties can be more difficult to obtain financing as the banks will want security knowing about potable water, erosion, flooding and so on.
Making such a big purchase requires a little digging into what it is you’re purchasing. Knowing the land and surroundings and doing your homework on the operations of the Cottage. For more information on Cottage Financing and Recreational Properties get in touch with us here!