The mortgages for secondary homes in Canada are different than those of primary homes for a number of reasons. Lenders and the government alike view secondary homes as a luxury good and may not offer the same attractive terms that a primary loan would. There are also different types of secondary homes that will determine the specific terms of the loan. It can help Airdrie homeowners to be armed with information before filling out their first application.
There Are Two Types of Secondary Homes
Second homes are broken into two major categories: Type A and Type B. Both require the borrower to live in the home at some point during the year, otherwise, the property will be considered a rental. A Type A home will need to be winterized to live in for 12 months of the year, while a Type B home may only have seasonal access. Both types of homes need to have running water, but only the Type A home will need to be winterized with heating and plumbing all-year round. The type of home will influence the mortgage the homeowner chooses.
Type A and Type B Mortgages
A Type A home will follow a similar mortgage protocol as that of a permanent residence. Lenders will receive more mortgage options, including fixed and variable interest rates. Type A mortgages require just 5% of the down payment, so long as the homeowner is eligible for lenders mortgage insurance (LMI) and the cost of the home does not exceed $1 million. Type B homes require a 10% down payment and cannot cost more than $350,000. Most Type A homes can be refinanced after 20% equity is achieved, while Type B homes typically cannot be refinanced.
Interest Rates Are Higher
Homeowners will typically find that their interest rates are between 0.1 to 0.2% higher on a secondary home than they are on a primary home. Lenders charge more because the home will generally sit for at least a few months out of the year. Many lenders will require homeowners to have insured lending for both types of homes, even if they're able to put down a substantial down payment.
Down Payment Details
The lenders who do issue non-insured home loans may require up to a 40% down payment for approval. If the land is entirely raw, the lender may insist on up to 50% down, though raw land located in a popular area may require only 25% down. Stricter lending rules lead many secondary homeowners to refinance their existing equity on a primary home to pay cash for their second home.
Draw Mortgages Are Available
A Process-Draw mortgage is available for second homes that still need to be constructed. This loan allows the homeowner to receive the loan in installments rather than in one lump sum. Because the money is released in intervals, it can help the homeowner stay on track when it comes to their construction budget. It also gives the lender the chance to approve each step of the construction process as it's happening, as they will send an inspector out to the site before the next round of funding is released.
Owning a Second Home As An Ideal Plan For Your Retirement!
While thousands of people across the country are worrying about what retirement holds in store for them, you can be one of the smart ones and start planning for it early. There is a lot to be said for foresight, and here is a great plan you might want to consider to line up your retirement.
Would you like to know a way that you can earn a second income while planning for your retirement? Buy a second home that you know would be perfect for your retirement and start renting it out now. The extra money you make on rental fees can be put back into the mortgage so that by the time you retire you'll owe less or no money on it. Then - at the point when you are ready to retire, you can sell the home that you currently occupy. It's a win-win situation.
You can talk to your accountant to crunch the numbers and see what you can come up with. A lot of this plan will be determined by your assets, your present income and your level of debt. In some cases it may not be wise to own a second home that you can stash for your retirement. In most cases, however, it will work out to your benefit perfectly.
Have you been thinking about getting a second Calgary home? If so, consider one that will meet your retirement needs as well. You'll have your future all locked up and will have less to worry about once you have plans set in place for your golden years.
Secondary homes can be an excellent investment for homeowners who want to expand their real estate portfolio, but they'll need to understand their mortgaging options before moving forward. It's up to each individual homeowner to decide the type of property they want to buy a vacation home based on both their current finances and their future goals.
Justin Havre is the top producing REALTOR® with RE/MAX First, Canada's very first RE/MAX brokerage. Calgary real estate is his passion; Justin specializes in Southwest & Northwest Calgary homes for sale. He can be reached at 403.217.0003 or contacted through this site.