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Paying for the good life - Diverse mortgage strategies help Canadians cannon-ball into vacation home ownership
VANCOUVER, BRITISH COLUMBIA, May 16 - Diving into the good life, Canadians are
purchasing vacation homes like never before. According to Statistics Canada,
in 2005 Canadians held 1 billion in real estate other than their principal
residence, which is almost double the amount held just seven years earlier -
6 billion. The average cost of that real estate was 4,400 and the
average amount of debt held on those assets was 7,900.
With surging demand, vacation spots across Canada have in recent years
seen prices for property edge ever higher. While recreational property may
seem out of reach, buyers who want their own patch of the great outdoors are
turning to a variety of mortgage strategies.
"For more modestly priced cottages, we're seeing buyers use a home equity
line of credit on their first residence to come up with a down payment or to
purchase the place outright," says Gary Siegle, regional manager with Invis in
Calgary. "For pricier vacation homes in the more popular areas, many buyers
opt for a separate mortgage, but we're seeing buyers choosing longer
amortizations - in some cases up to 40 years - so that monthly mortgage
payments are as low as they can be. They may plan to sell the home down the
road or will it to the kids (along with the mortgage) to keep it in the
family."
For a purchase involving a mortgage of 0,000 at a competitive rate of
5.24% and an amortization of 40 years, the mortgage payment adds up to ,236
per month.
When qualifying for vacation home financing, the lender will simply add
the new mortgage payment onto the borrower's total monthly debt payments - if
these do not exceed 40% of total monthly household income, the loan will most
likely be approved.
In the case of a vacation home that buyers intend to rent out most of the
time, some lenders (but not all) may deduct a percentage of the rental income
from their total monthly debt payments when deciding to go ahead with the
mortgage.
The experts at Invis, Canada's largest mortgage brokerage firm, have some
advice as you search for your own getaway:
Make sure you tally all the costs - along with your mortgage payment
there are utilities, taxes, maintenance, as well as insurance against
fire and perhaps other hazards like floods, depending on the location. A
mortgage pre-approval will allow you to get a sense of how much you can
reasonably spend on financing.
Think about how much will you use the place - a recreational property
that seems perfect now may not seem right in a few years. For example, a
cabin in the woods may be great for a young family, but may seem boring
to teenagers, or may not be a suitable place to retire should you need to
be close to shopping or other amenities.
Consider joint ownership very carefully - this can be a great way to
share the costs of a place that still feels like your own, but having the
right mix of personalities is key to a long-lasting arrangement. You and
the other owners will have to decide jointly on everything, from urgent
repairs to shopping for common supplies.
Seek advice on financing - With a growing number of mortgage options on
the Canadian market, as a prospective borrower you should understand your
financing options. "The bottom line is that emotion shouldn't trump
common sense when it comes to buying vacation property," counsels Siegle.
"Buyers need to do their mortgage homework, and the advice of a mortgage
broker can help them get the most for their vacation home dollar."
MyMortgageBC.com note: Invis offers solid advice in regards to purchasing and mortgaging a vacation property. It's important to always do your due diligence.
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