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Second Home Mortgage

A second home can be a great investment for you and your family and can be used as a secondary residence or a place to get away for you and your family. When applying for a second home mortgage your lender will look at the property and your financial situation to determine if you are eligible. Generally, the higher your credit score and the larger your down payment is the better your mortgage rate will be.

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    While regular mortgages are given in a lump sum for a home purchase a construction mortgage is given, or drawn, based on the stage of construction. As each stage is met and verified by an inspector the lender will release a portion of the total mortgage amount. While the specifics can vary depending on the lender the draw schedule for a construction mortgage will look like:
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    There are several advantages that come with having a construction mortgage:

    • Design Choice: The biggest advantage of a construction mortgage is that it allows you the greatest input in designing your new home. Having the freedom to design your dream home can be beneficial for you and your family.
    • Construction Options: A construction mortgage gives you the option to choose between who you want to build your home and how you want it built, which gives you the freedom to choose a solution that is the right fit for you.
    • Location: Being able to build your new home on your own plot of land gives you the ability to take advantage of land that is available to you. Similarly, being able to build your home in a new residentially zoned area can also give you the freedom to choose where you move to.

    Despite the advantages of a construction mortgage there are factors that you need to consider before you proceed:

    • Payment: Before you get a construction mortgage you will want to assess its affordability and if the choice is right for you. While the building is being constructed you will be responsible for ensuring that builders and the construction company are paid on time which will require cash to bridge the gap between the mortgage draws.
    • Construction: With a construction mortgage you need to navigate the construction process which includes the design choices of the home, negotiating with contractors, and being comfortable with the construction timeline.
    • Delays and Unforeseen Costs: With a construction mortgage there is the possibility of facing construction delays and additional or unexpected costs which can impact your plans. Accounting for delays and unforeseen costs in your plans can be helpful in proper planning and managing the stress of the situation.
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    Register your mortgage renewal date with Mortgagesquad.ca and you could WIN your first month’s mortgage payment upon renewal (see terms and conditions). When you register your renewal date with us, you are securing the lowest interest rate possible up to four months prior to your mortgage coming due. So, if rates go up prior to your mortgage renewing, you can still get the lower rate. If rates go down, you will still get the lower rate… it is a WIN WIN FOR YOU.

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    Tips for Getting a Construction Mortgage

    Because the burden to prove eligibility is greater on self-employed individuals, it pays to be well prepared before applying for a loan. The following should be considered before going into apply for a Self-Employed Mortgage:

    Risks of a Second Home Mortgage

    While there are many advantages to using a second home mortgage to purchase a second property there are risks and other considerations to keep in mind:

    • Cost: A second home mortgage is a loan, so it is a form of debt. The cost of a property can be high and will require a down payment when getting a mortgage to purchase. You will want to ensure that you can afford the additional risk and costs of getting an additional mortgage.
    • Affordability: In addition to the initial purchase costs of a second home mortgage you need to assess whether you can make the payments on the mortgage consistently in addition to any taxes such as a municipal tax or other property taxes.
    • Mortgage Fees: When applying for a second home mortgage there will be fees and costs associated with the application process. There may be appraisal fees and closing fees from your lender that you need to consider before proceeding.

    Qualifying for a Second Home Mortgage

    A second home mortgage is for properties that meet the building requirements to be considered a secondary home (Type A). The requirements are:

    • The building must have a permanent foundation that meets proper standards.
    • It must be zoned for use as either residential, rural, or seasonal.
    • The property title must be a freehold or condominium title. Co-op ownership or timeshares are not considered for a second home mortgage.
    • The property is required to have a bedroom, a common area, a kitchen, and a washroom with a shower.
    • The property must have roads that are serviced, and needs to be accessible year-round.
    • The property must be considered winterized, meaning it is liveable during winter.
    • Tap water for the property must be drinkable
    • Building construction standards need to be met and necessary maintenance must be up to date.

    For a property that meets these specifications as a second home (Type A) the minimum down payment for a second home mortgage is 5%. If the property value is greater than $500,000 the down payment must be 10% for the portion of the value that is above $500,000.

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    Commonly Asked Questions

    The minimum down payment for a second home mortgage is 5% of the property’s value that is under $500,000, and if the property is worth more than $500,000 then the minimum down payment must include 10% of the value of the property greater than $500,000.
     
    The mortgage rates for a second home mortgage are typically higher than for a primary mortgage. This is because they are considered to be a higher risk for the lender. The larger your down payment is and the better your credit score is the more favourable your mortgage rate will be.
     
    To get approved for a second home mortgage the lender will assess the property and your financial situation. You will need a down payment and the lender will need to know about your employment and your credit score. The minimum credit score will typically be at least 600 but many lenders will require higher than that.
     
    A second home will generally be required to be a certain distance from your primary home, this can differ depending on the lender but typically 50 miles away is considered far enough. If the home is too close to your primary home it may be considered as an investment property which will have different mortgage criteria.