Dreaming of a cottage, vacation home, or second property in Canada? The mortgage rules differ from your primary residence, and understanding these differences upfront will help you plan your financing strategy.
Second Home vs Investment Property
Lenders categorize properties differently:
Second Home/Vacation Property:
- Personal use (not primarily rented)
- Seasonal occupancy acceptable
- Different location from primary home
Investment/Rental Property:
- Purchased primarily for rental income
- Tenant-occupied most of the year
- Different financing rules apply
This guide focuses on second homes for personal use.
Down Payment Requirements
Second homes require larger down payments than primary residences:
- Minimum: 5-20% depending on lender
- Typical: 20% to avoid CMHC insurance (vacation properties often can't be insured)
- Reality: Many lenders want 20%+ for seasonal properties
CMHC insurance generally isn't available for:
- Seasonal/vacation properties
- Properties in remote areas
- Properties you won't occupy as primary residence
Qualifying With Two Mortgages
When buying a second property, lenders consider:
Your total debt load:
- First mortgage payments
- Second property mortgage
- All other debts
Your Gross Debt Service (GDS):
Maximum typically 32-35% of income
Your Total Debt Service (TDS):
Maximum typically 42-44% of income
Having an existing mortgage makes qualifying harder, but it's absolutely doable with planning.
Using First Home Equity
Many second-home buyers use equity from their primary residence:
Option 1: Home Equity Line of Credit (HELOC)
- Borrow up to 65% of first home's value
- Interest-only payments
- Flexible access to funds
Option 2: Refinance First Home
- Access up to 80% of value
- Blend into regular mortgage payments
- Often lower rate than HELOC
Learn more in our HELOC vs refinance comparison.
Cottage-Specific Considerations
Seasonal access:
Some lenders won't finance properties with seasonal-only road access.
Water source:
Well water vs municipal—some lenders have preferences.
Construction type:
Permanent vs seasonal construction affects financing options.
Location:
Remote or island properties may have fewer lender options.
Can You Rent Out Your Second Home?
Yes, but it affects your mortgage:
Occasional rental (few weeks/year):
- Generally acceptable as a second home
- Doesn't change to investment property
Significant rental (6+ months):
- May be treated as investment property
- Different qualification rules
- Higher down payment potentially required
Tax Considerations
Property taxes: You'll pay on both properties
Capital gains: Second homes are subject to capital gains tax when sold (unlike primary residence)
Rental income: If rented, income is taxable but expenses are deductible
Consult a tax professional for your specific situation.
Insurance Requirements
Second homes need:
- Year-round property insurance
- Coverage for seasonal vacancy
- Flood/fire coverage appropriate to location
- Liability coverage
Lenders will require proof of insurance.
FAQ
Q: Can I use a second property as my retirement home later?
A: Yes, many people buy vacation homes with plans to eventually make them primary residences.
Q: Do cottage properties appreciate like city homes?
A: It varies by location. Desirable cottage areas have seen strong appreciation, but the market can be more volatile.
Q: Can I get a cottage mortgage with less than 20% down?
A: Difficult. Most seasonal properties require 20%+ because mortgage insurance isn't available.
Q: What if the cottage needs repairs?
A: Factor renovation costs into your budget. Some lenders offer purchase-plus-improvement mortgages.
Q: Can my kids inherit the cottage tax-efficiently?
A: Estate planning is essential. Without planning, your estate may face significant capital gains tax.
What's Next
Second home ownership is a wonderful goal but requires more planning than your first purchase. Make sure you understand your debt ratios and have a clear picture of total costs before committing.
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