5 Things to Know About Financing a Cottage or Lake House in Ontario - Royal Homes 5 Things to Know About Financing a Cottage or Lake House in Ontario - Royal Homes
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5 Things to Know About Financing a Cottage or Lake House in Ontario

You’ve set your heart on owning your own vacation home. And not just any vacation home: a perfect, picturesque cottage in the woods, or on the shores of a glimmering lake. But there’s something you need to know before you can make that dream come true: how to go about financing it!

The process of financing a cottage or lake hour isn’t so different from buying a house. However, there are a few distinctive differences you should keep in mind.

To help you avoid any nasty surprises, here are the 5 things you should know about financing a cottage in Ontario before you get caught up in the process!

1. Seasonal Cottages Are Harder to Finance.

First thing’s first. Is the cottage winterized?

If the answer’s no, you’ll find that your options for financing are limited.

From a lender’s point of view, all cottages fall into one of two categories:

  1. Type A or all-season cottages, and
  2. Type B or seasonal cottages.

Type A cottages are secondary homes that could be used as a primary residence. They contain a permanent heat source (a furnace, boiler, sub-floor heat, etc.), potable running water, and a permanent foundation below the frost line.

Type B cottages are missing one or more of the above. This category includes homes that rely on a wood stove for heat, homes resting on a temporary foundation (such as trailer homes) and homes that lacksafe, running water.

Most lenders are reluctant to finance a Type B cottage, and they tend to require a higher minimum down payment (typically 10% versus 5% for a Type A cottage) and carry a higher interest rate.

2. You Can Finance a Cottage With the Equity In Your Home.

One of the most common ways to finance a cottage in Ontario is a home equity line of credit or HELOC. This leverages the equity you have in your primary residence to fund the down payment of your vacation home.

Unlike a mortgage, a HELOC only requires that you pay the interest ‒ not the principal ‒ and gives you an indefinite time to pay it down. Of course, since a HELOC carries a higher interest rate than a mortgage, it’ll add up quickly if you ignore the principal!

You can also use a home equity line of credit to purchase vacant land and build yourself a new, custom cottage from scratch.

3. Waterfront Cottages Can Be Harder to Finance.

Who doesn’t love the idea of a cottage overlooking a crisp, clear lake? Well, unfortunately, some lenders aren’t the biggest fan.

It’s not that bankers don’t love a good lake. Rather, it’s that shoreline residents have to contend with risks like springtime flooding, waterborne parasites, and lakefront erosion, to name a few. These factors could affect the value of your property and thus your ability to pay back the lender.

Of course, this doesn’t mean you can’t find a mortgage for a lake house. You just might need to prove that the water is safe, or agree to mitigate the risk of flooding and erosion, and may have to come up with a bigger down payment.

4. A Timeshare Cottage Won’t Qualify.

Fractional ownership properties, also known as timeshares, generally don’t qualify for any sort of mortgage financing in Ontario. This includes fractional ownership cottages, lake houses and other more ‘remote’ vacation homes.

When you buy a cottage or vacant lot, you have the power to sell, rent, upgrade or renovate the property as you like ‒ and when it comes time to move on, you can profit off that investment. You could even pass it down to your children or grandchildren. Since a timeshare doesn’t give you any of those benefits, most lenders aren’t interested in financing one.

5. Get a Mortgage, a Line of Credit, or Both.

Don’t feel stuck with one or the other! Many cottage owners finance their dream home with a combination of different methods.

You can take out a mortgage to finance part of the home and finance the rest through your existing home equity.

Once you have an idea of how you’ll go about financing, we’d love to talk about making your dream home come true. Get in touch today or browse our model home gallery for inspiration!

Great final quality.Dan
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  • FAQ

    Where can I get a price list or How come your website doesn’t show pricing?

    Prices vary geographically, depending on where you are building. With the amount of options available, price lists run into thousands of options. Prices change with the options you choose. The best way to get an idea on pricing would be to contact our Design Centre nearest to where you are building.

    Why should I buy from you over a conventional or "Stick-Builder"?

    The advantages of prefab include building in a climate controlled environment, using environmentally friendly products which reduces waste and a CSA monitored quality controlled program. There is less time start to finish, with less disruption to neighborhood. We also sell at a firm price.

    Do your homes include a foundation?

    Yes our homes include full foundation and basement.

    How long does it take to build a Royal Home?

    It takes less than two weeks to build a home in our factory, but the process from start to finish is very dependent on the timing of obtaining a building permit. For most of our clients the process from start to delivery is twelve to sixteen weeks with move in eight to twelve weeks thereafter.

    What size homes do you build?

    As a custom builder we can build any size home but generally the average size range is between 1300 and 3500 sq feet.

    Do you build garages?

    Yes. Garages are built on site after the home is delivered.

    Are the homes energy efficient?

    Building a prefab home in a factory assures the highest attention to sealing the building envelope and ensures that the cold stays out.

    Since your homes are so energy efficient and air tight, how do you get fresh air?

    All our homes have HRV heat recovery ventilator air exchanger to remove stale air, and introduce fresh air.

    Where can I put a prefab home?

    Anywhere in Ontario you like.

    Can I really customize my prefab home?

    Yes, we use state of the art custom design software, today no two homes are built alike.

    Do you finish the basement?

    Yes. We can customize your basement to the finishes you desire.

    Are Royal Homes built to code?

    All Royal Homes are individually designed to meet all provincial and municipal building codes for your specific lot location.

    Do you build stick-built or conventional homes as well?

    We are a custom home builder first and use prefabricated components wherever we can, because it is a better way to build. If you have a remote site or custom home design with large open spaces we would look at what makes most sense for that design and location. This could include prebuilt panels or partially site built specific rooms.

    What makes the building process environmentally friendly?

    Waste in the factory is separated and recycled, reducing the impact on landfills. This has less disruption in terms of noise and time at job site. Building prefab allows for higher energy efficient homes and reduced heating costs.

    How is your home delivered?

    Our home is delivered by way of custom designed hydraulic flatbed trailers and precisely craned onto the foundation.

    Can you make changes or custom design?

    Yes, clients are given preliminary plans to review and changes are welcome and easily accommodated.