This year, the idea of buying a chalet has never been so strong in the minds of many people. But you still have to be able to get the mortgage to purchase your chalet.
With the current situation stretching, the possibility of getting away from it all for a weekend in nature is a real estate luxury that has suddenly taken on the appearance of an almost essential service.
Are you about to succumb to the call of the chalet near a ski mountain, a waterfront chalet or simply a cabin lost in the depths of a forest?
If so, here are some financial and budgetary elements to consider before you can spend your vacation away from the confined hustle and bustle of the city.
In a market where the good times are gone faster than a Sunday lounging on a dock, you need to better understand how to get the mortgage for your cottage.
Do you want to have a good time, make some money or both?
This is the first thing to determine before embarking on the search for a mortgage for a cottage since the vocation you assign to your property can have a direct impact on your mortgage financing.
If you rent out your second home more frequently than on an occasional basis, you are considered to be more of a real estate investor. By falling into the commercial category, you no longer have access to CMHC mortgage loan insurance, which means your down payment will need to cover at least 20% of the purchase price.
Note, however, that if your second home is used only for you, you will still have to pay capital gain tax at the time of resale.
That said, be sure to inform yourself well before buying a cottage to rent it because many municipalities require a special permit to be able to do short-term rental in their region.
Are you aiming for a real second home or a seasonal chalet?
Those who plan to use it primarily for personal use can finance their cottage up to 95% of its price with CMHC insurance, which should not be confused with mortgage life insurance, which in turn remains optional.
For a relatively well-located, four-season cottage, if your credit history is strong and you have sufficient means, you probably won’t have too much trouble securing financing.
For a “cabin in the wood” type chalet, where access to running water or electricity is not in the plans, it is sometimes much more complicated to obtain a mortgage. At National Bank, for example, a seasonal property can only be 90% financed. * (source: National Bank website.)
Can refinancing your current mortgage be used as leverage?
The usual path is that the purchase of a cottage comes a few years after the purchase of a primary residence. If so, you have the option of refinancing your home mortgage to get the down payment you need to buy a cottage.
Some people may even go so far as to pay the entire chalet this way, but it is questionable whether it would be more profitable to use these funds otherwise.
Can you make it a group project?
Having a chalet is a bit like having a dog. It makes for a lot of beautiful moments, but it takes work and is often a source of costly contingencies.
Investing with loved ones will not only make it easier for you to obtain mortgage financing, but you will also share the risks and responsibilities associated with the cottage.
The golden rule for any financial or group business project remains the same: establish everyone’s expectations and responsibilities in great detail and put in place a system to ensure that each party meets its commitments.
Did you take the time to shop around for the mortgage for the purchase of your cottage?
Like everything in life, you need to shop around for a cottage mortgage!
Please do more than just trust the advisor at your usual financial institution.
Whether it is by surveying the bank branches and caisses in the targeted region yourself or by using the services of a mortgage broker specializing in chalet-type second homes, you increase your chances of obtaining a good rate and advantageous terms.
In today’s market, shopping around for a cottage without having a pre-approved mortgage is like going fishing without bait. Your chances of getting a good catch are extremely slim.
That said, if you can’t afford a chalet, you can always rent one.
It’s good because we have several chalets for rent on WeChalet and you can browse all of our available properties in nature via our search page.
And if you already own a chalet and would like to offer it for rent on WeChalet, know that you can also create your listing for free here.
By the way, we are really curious to know which are your favorite chalets on our site and why?