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 things 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 lack safe, 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 homes 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!


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