For a lot of people, a vacation home is more than just a weekend getaway—it’s a place to make memories with family, escape the hustle of everyday life, or even settle into retirement. Whether you’re dreaming about cozy summer nights by the lake or looking to invest in a place you can use year-round, there’s one thing you’ll definitely need to think through: your mortgage situation.

Before you start making offers on that perfect property, it’s a good idea to figure out whether owning a second home is something you can afford—and whether it makes sense for your lifestyle and long-term plans. That’s where working with a mortgage broker can really help. They can walk you through your options, help you get pre-approved, and break down what kind of mortgage you’d qualify for.

How Do Vacation Home Mortgages Work?

You can usually get a mortgage for a cottage much like you would for your primary home, but the details depend on the type of property you’re buying. In Canada, cottages are generally categorized as either Type A or Type B properties.

Type A cottages are fully equipped homes that can be lived in year-round. They have running water, a permanent heat source, and are accessible even in winter. If you’re buying this kind of place, you’ll usually need at least 5% down, and you’ll have the option to refinance once you’ve built up some equity—just like with your main home.

Type B cottages are more seasonal. Think summer cabins or rustic getaways without permanent heat or full winter access. These typically require a bigger down payment and may not come with the option to refinance later on.

What’s The Difference Between a Vacation Home and a Primary Residence Mortgage?

If you already own a home, you’ve probably gone through the mortgage process — stress test, credit score checks, and proving your income and debts are under control. But when it comes to buying a second property, there are a few extra things to know.

The down payment. While it still depends on the price of the property, second homes often require a larger upfront payment, especially if it’s not your primary residence or if it has more than one unit.

Interest rates for vacation home mortgages might be slightly higher than for primary residence mortgages, as the property is not owner-occupied year-round.

A higher credit score may be required by lenders for vacation home mortgages compared to primary residence mortgages.

Programs for vacation or secondary homes may be available with specific requirements for Type B properties, such as no permanent heat source, seasonal road use, and running water.

Again, this is where a mortgage broker comes in handy—they’ll help you crunch the numbers and figure out exactly what you type of mortgage or financing you’ll need.

Can You Use the Equity in Your Current Home?

Absolutely. A lot of people use the equity they’ve built up in their current home to help finance the purchase of a second one. There are a few ways to do this:

Mortgage refinance: You replace your current mortgage with a new one that’s bigger, giving you access to some of the equity you’ve built. Just keep in mind you might face a penalty if you break your current mortgage early.

HELOC (Home Equity Line of Credit): This gives you a revolving line of credit based on your home’s equity. You can borrow from it when needed and repay it on your own schedule, kind of like a credit card—but secured against your house.

Second mortgage: This is a separate loan on top of your original mortgage. It’s usually more expensive because it’s riskier for lenders, but it can be a good option in the right situation.

Reverse mortgage: If you’re 55 or older, you might be eligible for a reverse mortgage, which lets you access up to 55% of your home’s value without monthly payments. It’s not commonly used to buy a second property, but it’s worth considering.

Each of these options has its own pros, cons, and eligibility requirements—and your mortgage broker can help you sort through them to see what works best for your situation.

Is Buying a Second Home A Good Idea?

That depends. For some people, owning a cottage or second home is a dream come true; for others, it can turn into a financial burden. You’ll want to think about how often you’ll use the property, whether you plan to rent it out, and how you’ll cover all the costs—from the mortgage to property taxes and maintenance.

You should also factor in future property value, changing interest rates, and tax implications. If you sell a second home that’s gone up in value, you’ll likely owe capital gains tax since it’s not your principal residence. As of June 25, 2024, capital gains on second homes are taxed at 50% on the first $250,000 of gains and 66.67% on anything over that. So, if your cottage goes up in value a lot, you could be facing a big tax bill down the road.

It’s smart to speak to a financial advisor about how this kind of investment fits into your long-term plan, and to a mortgage broker about how you’ll finance it all.

Let’s Chat About Your Vacation Home Goals and How I Can Find You The Perfect Mortgage

Buying a vacation property can be an amazing step, whether it’s for personal enjoyment or as an investment—but it’s not something you want to dive into without a lot of thought. I can help you figure out what kind of mortgage you can afford, explore your financing options, and put together a plan that works for you.

Reach out any time to book a consultation; contact me online or call me at 705-315-0516. Let’s talk about your goals, your budget, and how we can make that cottage dream happen.