Mortgage and Tax Information For Canadians Buying a Vacation Home

Your Guide to Buying a Vacation Home in CanadaA vacation retreat may be one of the top wishes of homeowners. However, it is possible to make this wish into a reality. In order to do so, it is important to understand how to qualify for a mortgage on a vacation home and to understand some of the initial tax implications when buying such a home.

Income Requirements for Potential Buyers

Individuals, couples and families looking to buy a vacation home need to have sufficient personal income. They may be carrying two mortgages when purchasing a vacation home, as they still may need to pay off the mortgage on a primary home. Income requirements for those who buy a vacation home and plan on living in it are different than that for those who want to rent out a vacation property.

When it comes to a down payment, borrowers who can make a 20 per cent down payment should go with conventional loan financing. Other options for those who are putting down as little as 5 per cent include the Vacation Home/Secondary Homes Program and the Vacation Homes Program. Those making a small down payment may be required to carry an insurance premium.

Mortgage Loan Requirements

Consider the requirements when going for a mortgage on a vacation home. Many aspects remain similar to that of a mortgage loan for a primary residence. A lender will need to take into account one's income, employment history and credit history. A good credit score is often required to qualify for a home mortgage. The LTV is important when taking out a loan on a vacation home for programs such as the Vacation/Secondary Homes Program. In the program there needs to be a 90 per cent LTV on the purchase transaction. Other stipulations may apply depending on the type of program used to buy a vacation home. Those who want to free up their equity in a vacation home to use toward other investments may want to look for lenders offering HELOC.

Taxes with the Purchase of a Vacation Home

Those who own a second home should be aware that there may be different tax implications for those looking to rent. No tax is payable for those moving into a vacation home. However, taxation would be different for those vacation homes used to produce or gain income in Canada, making the rental property a deemed disposition. Capital gains tax often must be paid when a vacation home is sold. Some exemptions may apply when the vacation property becomes a principal residence. It is useful to speak with a tax accountant to learn more about taxation on vacation home purchases and potential exemptions when selling a vacation home.

Buying a second home to generate income has its advantages. Depreciation of the property, mortgage interest costs and property maintenance expenses are all generally tax-deductible. It benefits potential buyers to find a structurally sound property in a desirable community to make the most out of this option.

Learn More about Buying a Vacation Home

Altadore homeowners should willing to make a down payment and take out a mortgage loan to buy a vacation property in Canada. Different regulations may apply for non-residents looking to buy a vacation home in Canada. Contact a reputable lender to understand more about specific requirements needed to be approved for a home mortgage loan on a vacation home in Canada.

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