Owning a vacation home is a dream for many Canadians, whether it’s a cozy cabin in the mountains, a lakeside cottage, or a modern retreat by the ocean. But before you imagine lazy summer mornings or winter getaways, it’s important to understand what’s involved in financing a second property. Securing a mortgage for a vacation home is different from financing a primary residence, and knowing what lenders look for can make the process smoother and less stressful.
What Counts as a Vacation Home?
In Canada, lenders typically categorize vacation properties into two types:
- Type A: These are fully accessible, year-round properties with running water, electricity, a permanent foundation, and road access. They’re considered low-risk and are easier to finance with traditional mortgage terms.
- Type B: These are more seasonal or remote properties that may lack one or more basic features (e.g., no winter access, no running water). While you can still get a mortgage for a Type B property, the down payment requirement may be higher, and fewer lenders may be willing to finance it.
Knowing which category your dream cottage falls under will help determine your financing options.
Can You Use a Traditional Mortgage?
Yes, if the vacation home meets the criteria for a Type A property, you may be eligible for a conventional mortgage with similar terms to those for your primary residence. This includes:
- Down payments as low as 5–10% (depending on the purchase price)
- Competitive fixed or variable rates
- Amortization periods up to 25 years
For more remote or seasonal homes (Type B), a higher down payment, often 20% or more, is required, and options may be limited to select lenders.
Qualifying for a Vacation Home Mortgage
To qualify, lenders will assess your financial picture just as they would for any mortgage application. Here’s what they’ll look at:
- Strong Credit History: A healthy credit score (typically 680 and above) improves your chances of approval and helps you access better rates.
- Debt-to-Income Ratio: Lenders will calculate how much of your income is already going toward other debts (including your current mortgage, if you have one). A lower ratio indicates that you can comfortably afford payments on a second home.
- Proof of Stable Income: Whether you’re salaried or self-employed, lenders want to see consistent, reliable income. Expect to provide recent tax returns and employment verification.
- Down Payment: The more you can put down, the better. A higher down payment reduces your risk in the eyes of lenders and can lower your monthly payments.
Can You Use Your Home Equity?
Yes. Many vacation homebuyers use the equity in their primary residence to help fund the down payment or even the full purchase. Options include:
- Home Equity Line of Credit (HELOC)
- Cash-out refinance on your existing mortgage
Tapping into your equity can be a cost-effective way to avoid additional borrowing or increase your buying power, especially if your current home has appreciated significantly.
Rental Income and Vacation Homes
If you’re planning to rent out the property when you’re not using it, be aware that not all lenders treat potential rental income the same way. Some may include a portion of expected rental earnings in your income calculation others may not.
It’s also important to understand that a vacation home and a rental or investment property are classified differently. A vacation home is considered a secondary residence for personal use, while a rental property is an income-generating asset. Make your intentions clear with your lender so you can access the correct mortgage product.
Other Costs to Keep in Mind
Buying a vacation home comes with more than just mortgage payments. Budget for:
- Property taxes in the second location
- Seasonal maintenance (especially in remote areas)
- Insurance (often higher for non-primary residences)
- Utilities and security systems
- Travel costs to and from the property
These ongoing costs can add up, so it’s wise to factor them into your total affordability estimate.
Should You Pay in Cash or Finance?
If you have the cash to purchase the property outright, that can simplify the process and eliminate monthly payments. However, interest rates are still historically low, and financing may allow you to preserve liquidity for other investments or renovations.
To finance a vacation home in Canada, you’ll need a strong credit profile, steady income, and a healthy down payment. Type A properties (year-round accessible homes) are easier to finance than Type B seasonal cottages. You may also be able to leverage home equity to increase your buying power. Lenders will treat the application seriously, so planning ahead is key.
Let us help you find the right mortgage solution. Contact Niche Mortgages to speak with an expert about vacation home financing tailored to your lifestyle and goals. Whether you’re buying for weekend escapes or building family traditions, we’re here to help make it happen.