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Why You Should Invest in a Cottage

Have you ever dreamt of leaving the chaotic city life in exchange for a charming cottage in the countryside? Perhaps you often wonder what it would be like to have a lakeside vacation home, where you could escape to for long weekends? Owning a cottage is a dream that many of us have, but one that not everyone turns into a reality.

Cottages are more sought-after than ever, with homeowners searching for property outside of the city where they can go to in their free time. However, it’s no secret that with buying a cottage comes a high price point and mortgage.

If you’re still on the fence about investing in a cottage, read on to find out about the benefits that this investment can bring, as well as the different cottage types that are available to purchase.

Benefits of a Cottage

  1. It’s Cheaper Than Buying a House

In recent years, property market prices have skyrocketed in urban areas. This has led to more people seeking out cottages as potential residences. A small condo in Toronto could cost the same as a spacious, four-bedroom lakeside cottage. With a cottage, you get more value for your money.

  1. A More Relaxing Environment

Cottages offer you the chance to flee from the city at weekends and during summer vacations. A beautiful cottage in a tranquil setting offers the perfect backdrop for making the most out of your leisure time and creating unforgettable life-long memories with family and friends.

  1. It Can Be Profitable

If you purchase a cottage but don’t take up permanent residence there, you can always turn it into a profitable venture. Leasing your property will generate extra income for you, thereby giving you more financial freedom or helping you with mortgage costs.

Different Types of Cottages

Unbeknown to most, cottages in Canada are separated into two categories: A and B. If you want to invest in a cottage, it’s important to understand the difference between the two kinds of cottages. Depending on the sort of property you buy, this could significantly alter your mortgage payments.

How to Finance Type A Cottages

Type A Cottages are considered ‘second homes’. They are made for year-round use and are fitted with all the features of a normal house, like drinkable running water and permanent heating. These properties are also set on a permanent foundation.

Type A cottages are mortgaged in a similar way to permanent residences. You’ll need at least a 5% down payment, and if you can’t pay more than 20%, a premium rate (like a regular mortgage) is added.

There is a limit of 95% on loans for type A Cottages. It is considered a riskier investment as it is usually the second property you’re mortgaging. Maximum mortgage amounts are lowered on these properties, usually at around $700,000. 

How to Finance Type B Cottages

Type B Cottages are considered ‘vacation homes’ and don’t require features such as year-round heating. They are structurally different as well and are built on floating foundations such as pillars. 

Borrowing rates for these cottages are lower than other properties, at 90% of the property value. The mortgage loan for these properties is capped at approximately $400,000. 

Mortgage interest rates on both type A and B Cottages are up to 0.20% higher than on other mortgages because they aren’t seen as a permanent residence, which means monthly repayments can be costly. You’ll need a good credit score to qualify for a mortgage on either one of these properties.

Remember that if you already own a home, you can refinance up to 80% of its value. Depending on how much of your mortgage you’ve already paid off, after refinancing, you can use the amount you’ve paid back and invest this in your new cottage.

Contact Axiom Mortgage Solutions 

Are you ready to invest in a cottage but need advice on how to proceed? Look no further than Axiom Mortgage Solutions. Our experienced team of mortgage brokers serve the Tecumseh and Leamington areas and are ready to advise you on the best mortgage plan for your property.

Drop us a line at 519-735-1440 (Tecumseh) or 519-326-4978 (Lemington) or get in touch via our website today!

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