Today’s Blog comes from Deborah DaSilva, a cottager and mortgage agent with Mortgage Intelligence. It has been edited slightly for content and sizing requirements.

All across Canada we’re seeing the recreational property market continue to go through the cedar-shingled roof. Industry experts predict another year in which buyers seeking a property may outnumber the recreational properties available.

Traditionally financing a recreational property is more challenging than funding a principal residence. Lending institutions typically find second homes a much less desirable investment. Purchasers are often advised to take out a home equity line of credit or a second mortgage on their principal residence in order to buy the recreation property.

For example, when we purchased our cottage in the Haliburton Highlands in southern Ontario, we used a home equity line of credit from our principle residence - 25% as a down payment and the remaining 75% we used a line of credit based on the value of our cottage. We actually financed the entire purchase.

When people inquire about financing options, my first question is usually, “Is your home free and clear?” Taking out a line of credit on a home’s equity versus adding a second mortgage is much easier. People can have it for a fixed term with 25 year amortization payments. They can also allow the interest rate to float or lock it in, but the fixed rate on a line of credit is the same as a five year mortgage rate.

The added benefit to using a line of credit is as you pay it down, more credit becomes available that can be used to perform renovations. A line of credit is not for everyone. If people are not disciplined in their spending and keep using up the line of credit, then this is not the right instrument. I recommend my clients use it only to increase of their property or to maintain it.

We are also beginning to see that some lenders have developed flexible new mortgage products and policies that are specifically designed for the recreational property/second home market.

Previously vacation properties that were on seasonal roads, only accessible by boats, did not have central heating, or built on cinder block foundations were previously considered ineligible for financing. Now these same residences can be financed. While the rooms do not have to be separate, the property still has to have a kitchen, bathroom and common area.

It is wise to do your homework first. In today’s heated recreational property market, some purchasers have an edge in the marketplace because they are cash buyers. Buyers who are financing their purchase may want to consider talking to a mortgage professional to determine approximately how much they qualify for before launching their search.

Thank you Deborah,

If people have questions or would like additional clarification, I invite you to visit Deborah’s website at www.yourmortgagesource.ca.

Cheers,

Julie

This entry was posted on Monday, February 4th, 2008 at 10:42 am and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.