If you think financing a cottage is the same as financing a house, you’re in for a big surprise. Pre-approval on a mortgage is especially important because of the different types of properties available, says Barrie, Ontario, RBC mortgage specialist Jeremy Ridley.

Mortgage lenders place cottage types into two distinct categories for financing purposes: Vacation type A and B. Type A are cottages built on a permanent foundation with a permanent heat source, potable water, and all-year access. On the other hand, Type B, meanwhile, are not on a permanent footing and don’t come with a permanent heat source nor all-year access.

In Canada when you purchase a home with less than a 20 per cent down payment, you must have be backed by mortgage default insurance through either the Canadian Mortgage and Housing Corporation or Genworth Canada.

Because of the new rules introduced this year from the CMHC, their Second Home Program was halted as of May 30th. That means if you already have an insured mortgage on your primary residence, you will not be approved for a second. The bottom line is you’ll need to be prepared to save that 20 per cent down payment for a Type A cottage purchase.

If you’d rather forgo high-ratio insurance costs for a Type B property, you’ll need a heftier down payment to the tune of 35 per cent down payment with Genworth. You can go as low as a 10 per cent down, but you’ll pay higher mortgage insurance premiums.

Other costs

“You also have to budget for taxes, heat, hydro, maintenance, and snow removal,” Ridley says. “And even with a vacation property you still need to put aside 1.5 per cent of the purchasing price for estimated closing costs.” Based on a $200,000 purchase price, this would be $3,000.

Then there are hidden costs of cottage ownership, explains Dorset, Ont.-area real-estate salesperson Mike Baum. Property taxes, home inspection, land transfer taxes are just the beginning.

“Road maintenance is something people may not realize they need to pay for,” Baum says. “You may need to put money toward plowing if the road is not township or municipally owned. There’s summer road maintenance too.”

Other hidden costs include:

Garbage removal

Leaf and tree-limb clean-up. “You may need to pay for this as trees fall apart with winds and storms,” Baum says.

Hydro poles and wiring. “If a tree comes down or wind blows things down, quite often that’s the onus of the owner to address,” Baum says.

Dock repairs

Driveway repairs due to washouts from heavy downpours

Flooding basements. “If there are heavy rains or spring thaw and the sump pump fails, that may require the basement to be dug around and resealed,” Baum says.

Cottage-association fees

Marina fees, including parking and boat maintenance and storage fees

Plumbing costs. “Most conventional, old-style plumbing corrodes and wears thin if the water is not treated and may need replacement,” Baum notes.

Water. “Water should be filtered and UV-protected and tested for minerals to prevent corrosion of pipes,” Baum says.

Wiring. “Be sure to check wiring type and age,” Baum says. “Is the hydro amperage and panel large enough to accommodate future renos or expansion?”

Published Date: Jun 23 2014