When it comes to taking on a vacation property, you will need to have a minimum down payment of five per cent of the purchase price. If you are purchasing a non-winterized vacation home, or will not have year-round access, then you will be required to put down 10 per cent.
You must also have sufficient credit score to qualify if not putting 20 per cent down. In addition to the down payment, you will also need to pass the stress-test and prove you can financially carry the mortgage of your existing live-in home and new vacation home.
When purchasing a vacation home or property, most lenders will allow you to borrow money against the equity you have in your current home and use it as a down payment for a second home. This is done through mortgage refinancing, which means getting a re-evaluation on your home and then redoing your mortgage based on the current value.
This will allow you to tap into the equity your home has built over the years, and pull out the extra funds for a down payment on your secondary property. Keep in mind, when using some of your current equity, it will increase the principal amount and interest payments on your mortgage as the mortgage is now refinanced at a higher amount.
Another option to unlock your home equity is through a line of credit or a HELOC (Home Equity Line of Credit). This option allows you to borrow money using the equity in your property, with the property as collateral.
A HELOC serves as a revolving line of credit to allow the borrower to access funds, as needed, letting you utilize as much (or as little) equity as required. In Canada, you are able to borrow up to 65 per cent of your home’s value using this method. However, keep in mind, your HELOC balance and current outstanding mortgage cannot exceed 80 per cent of your home’s value when added together.
The keys to success are right around the corner with a little bit of expert advice.
Cait Holmes is a mortgage broker in the qathet region.
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