Pros and Cons of a Second or Vacation Home in Canada

Pros of owning a second home in Canada

1. Vacation home: A second home in Canada can serve as a vacation home where you can retreat to for relaxation and enjoyment. It can be a place to escape the hustle and bustle of city life and experience the beauty of Canada’s natural landscapes.
2. Investment opportunity: Owning a second home in Canada can also be a smart investment. Real estate values in Canada have been steadily increasing over the years, and a second home can appreciate in value over time, providing a potentially lucrative investment opportunity.
3. Pay Mortgage Instead of Rent: A second home, even one financed under a 5% down payment program can be used by immediate family members.  Often, parents will purchase a property for their university or college kids to live in, saving rent and instead building equity.
4. Rental income: If you decide to rent out your second home, it can provide an additional source of income. Canada’s tourism industry is thriving, and there is a high demand for vacation rentals, particularly in popular areas such as Vancouver, Toronto, and Montreal.
5. Retirement home: A second home in Canada can also serve as a retirement home. If you plan to retire in Canada, owning a second home can give you a head start on finding the perfect retirement destination.

Second home mortgage financing

If you decide to purchase a second home in Canada, financing will likely be a key consideration. Here are some things to keep in mind:

1. Down payment: Sometimes lenders require a larger down payment for a second home than they do for a primary residence. You may need to provide a down payment of at least 20% of the purchase price.  However, you can also purchase with as little as 5% down through the CMHC or Sagen 2nd home program.
2. Credit score: Your credit score will also be an important factor in securing a second home mortgage. You will need a good credit score to qualify for a mortgage with favorable terms.
3. Debt-to-income ratio: Lenders will also consider your debt-to-income ratio, which is the amount of debt you have compared to your income. You will need to demonstrate that you can afford to make payments on both your primary residence and your second home.
4. Interest rates: Interest rates for second home mortgages are sometimes higher than those for primary residences. Be prepared to shop around and compare rates from different lenders to find the best deal.

Second Home Insurance considerations

Insurance is another important consideration when owning a second home in Canada.

Here are some things to keep in mind:

1. Property insurance: You will need to purchase property insurance to protect your second home from damage and loss.
2. Liability insurance: Liability insurance is also recommended, as it can protect you if someone is injured on your property.
3. Vacancy insurance: If your second home will be vacant for long periods, you may need to purchase vacancy insurance. This type of insurance can provide coverage for losses that may occur while the property is unoccupied, such as vandalism or theft.
4. Flood insurance: Depending on the location of your second home, you may also need to purchase flood insurance. This type of insurance can provide coverage for damages caused by flooding, which may not be covered under standard property insurance policies.
5. Homeowners association insurance: If your second home is located in a community with a homeowners association (HOA) or strata corporation, you may need to purchase additional insurance. The HOA may require you to purchase insurance to cover common areas and shared amenities.  Typically this insurance cost is part of your monthly strata or condo fees.

Lifestyle considerations

When considering a second home in Canada, it’s also important to think about the lifestyle implications of owning a second property.

Here are some things to keep in mind:

1. Travel time: If your second home is located far from your primary residence, travel time may be a factor to consider. You will need to factor in the time and cost of travel when visiting your second home.
2. Property management: If you plan to rent out your second home, you will need to hire a property management company to handle tenant inquiries, maintenance issues, and other responsibilities.
3. Local laws and regulations: You will need to be familiar with local laws and regulations, such as zoning laws, building codes, and rental regulations. Be sure to research these laws and regulations before purchasing your second home.
4. Seasonal factors: If your second home is located in a seasonal destination, you will need to consider factors such as weather patterns and tourism trends. These factors can affect the demand for your property and your ability to rent it out.

Conclusions and Further Thoughts

Owning a second home in Canada can provide a range of benefits, from a vacation home to an investment opportunity.

However, it’s important to consider the financial, insurance, and lifestyle implications before making your purchase.

By carefully weighing the pros and cons and consulting with a qualified real estate professional, you can make an informed decision about whether a second home in Canada is right for you.

Contact Huber Mortgage and discuss your second home or vacation home financing.  Click HERE.

Sincerely,

Michael

PS – One of my hobbies is blogging about mortgages, debt and government policy.  During the day I’m a MORTGAGE BROKER in Kelowna, BC!

Check out the Huber Mortgage Home Buyers Guide HERE