Buying a Family Cottage
Are you considering buying a cottage? You’re not alone. A cottage is the second most popular property type after primary residences. Wouldn’t it be nice to have a quiet place to go off to on weekends with the kids and escape the hustle and bustle of the city?
Buying a cottage is a lot like buying a primary residence, with a few key differences. We’ll look at those in this article.
Cottage Mortgage Financing
Similar to any property type, it’s important to consider the mortgage financing before you go out and start looking for potential cottages.
Most lenders offer mortgage financing programs geared specifically towards the cottage and second homes. Depending on the home and the purchase price, you may be able to buy it with as little as 5% down.
Type A vs. Type B Property
Before buying a cottage, you’ll want to familiarize yourself with the two types of properties: type A and type B.
A type-A cottage is one with access all around the year. It’s a home that’s already winterized, with a permanent heating source. It also has potable water with a permanent foundation that’s below the frost line.
Getting financing for a type A cottage is just like getting a mortgage for your primary residence. You can buy the property with as little as 5% down. You can typically get mortgage rates as competitive as your primary residence, although rates may be between 0.10% and 0.20% higher. If you put down less than 20%, mortgage default insurance premiums would apply.
A type B cottage is a property with seasonal access. Usually, you can’t access it during the winter. It also lacks a permanent heating source. Otherwise, it’s just like a type-A property. It has running water and has a floating foundation.
You have to make a bit more of a hefty down payment on a type B property. You’re required to put down at least 10% on the property. Again, you can expect rates that are between 0.10% and 0.20% higher. Mortgage default insurance premiums also apply when you put less than 20% down.
You can refinance a type A cottage to pull out equity, while you cannot a type B property.
Tapping into Your Primary Residence
Whether you’re looking to buy a cottage outright or you need help with the down payment, your primary residence can be a good place to start.
When you refinance your primary residence, you can access up to 80% of the equity. Can you use some or all of that equity towards the purchase of a cottage? If you have enough equity, you might be able to purchase the cottage without needing to take out its own mortgage. Otherwise, you could use the equity in your primary residence to cover the down payment of the cottage.
The Bottom Line
Are you trying to figure out which mortgage option makes the most sense for buying a cottage? Speak with our mortgage experts today for a helping hand.