Second homes can be a wonderful asset to your portfolio, but before you buy one, here are a few things to know.
Affordability
There are many programs for first time home buyers; programs that will not apply to your second home purchase. Be honest with yourself about your finances and expectations. Can you afford a second mortgage? Do you have other assets to leverage to help with the down payment?
Approval
Just as you needed to get approved for your first mortgage, you need to be approved for your second. Things like debt, taxes owed, liens, etc. can work against you. Never assume that you will automatically qualify because you are already a homeowner.
Insurance
Canadian Mortgage and Housing Corporation (CMHC) insures only one of your mortgages. If you have CMHC insurance on your primary residence, expect to put 20 per cent down – not 5 per cent – for your second home.
Equity
A common way to afford a second home is to leverage the equity in your primary residence. A Home Equity Line of Credit (HELOC) allows you to borrow up to 65 per cent of your home’s purchase or market price. Be aware, however, that a HELOC only requires monthly repayment of the interest rate and insurance premiums. If you delay paying off the principal, or continue to revolve the loan, you will pay a great deal more in interest over the years. Make a plan to pay off the HELOC if you go this route.
A HELOC is not the only way to leverage your primary residence’s equity. You can refinance your current home to access up to 80 per cent of its value.
Mortgage loans: Second home versus vacation home
Not all second homes are geared for year-round living or renting. If your second home is a part-time vacation home, you could be eligible for a mortgage loan to finance up to 90 per cent of its value. If the home will be a year-round residence, you could access up to 95 per cent of its value with a mortgage loan. Mortgage loans function similar to your regular mortgage, meaning you can opt for a fixed or variable rate, a 25-year amortization, or pay it off early (with some restrictions).
Getting on the Path to Second Home Ownership
Down payments, equity, loans – it can get overwhelming very fast! But it doesn’t have to be. Shopping for, and buying, a second home can be a fun and very rewarding experience when you use the services of real estate professionals.
It starts with a mortgage specialist/broker who will explain all the lending programs for which you quality, and help you make a decision on the best one for your budget and long-term goals. Next, you’ll work with a Realtor who knows the market and will help you find the second home you want, be it a quaint cottage, an investment property to flip, or a rentable unit.
Now is the time to consider second home ownership; rates are low and there is great inventory on the market. Get started by contacting Century 21® Poirier Real Estate. We’ve been making homeowners happy since 1967. Contact us today to learn more.
