Tag: mortgage

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Cottage Life

Is now the time to renegotiate your cottage mortgage?

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Have you heard about “Frugal February”? This social media trend encourages people to tackle all aspects of their finances throughout the month, no matter how small or big. For some, those goals are very big indeed, including renegotiating their mortgage.

Taking a long look at your mortgage is something that Ottawa mortgage broker Jacquie Bushell highly recommends, even if you don’t change anything. Having a robust discussion about your various options will leave you better informed and more confident about your finances (and no more feeling anxious when your nosy neighbour or pushy uncle says “Ya know what you should do with the cottage…”).

In the present economic climate, Bushell says, for the most part: “I’m in the camp of staying put… Rates are a little higher than what most people expect and nowhere near the sub-3 per cent mark. If there is no need to touch your mortgage, then don’t, and avoid a potentially higher rate than you currently have.”

Expenses are something that Ottawa and Toronto real estate lawyer Sabrina Ding wants clients to know about, noting that renegotiation often comes with costs. “Find out the penalty for ending your previous mortgage,” she says. “For example, if ‘Susan’ has a mortgage for $500,000 with a term of five years, and she decides to end her mortgage after only one year, then her interest penalty may be as high as $20,000 to $30,000. In contrast, if Susan can get a new mortgage with the same bank, then the bank will likely waive all interest penalties.”

However, Bushell notes that there are circumstances which make mortgage renegotiation a smart move these days, even when you take penalties into account: “If you are in an adjustable or variable rate mortgage and having troubles managing the increases, whether that’s financially or emotionally, you may want to consider converting to a fixed rate.” Ding echoes this sentiment, saying “A fixed rate means you get stability.”

Finally, Bushell points out that there might be special circumstances which warrant renegotiating your existing mortgage, including if you need to take out equity for debt repayment, renovations, or to build an emergency fund.“If you’re carrying large balances on your credit cards and/or lines of credit, you may want to exercise this option,” she says.

Before you make your final decision, make sure you understand the title requirements. Ding points out that the bank may require other family members to go on your cottage’s title for increased security if you have insufficient income. While it’s tempting to accept mom or dad’s nominal help, know that it comes with consequences. “If dad already has a property under his name, then going on the title to this second property means that he must pay expensive capital gains tax when this second property is sold,” says Ding.

In short, mortgage renegotiation is a good move for some cottage owners but unnecessary for others. However, everyone should know the rules, understand their options, and talk through their choices with a trusted professional.

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Mortgage stress test remains unchanged (for now) despite high interest rates

Photo by Puttachat Kumkrong/Shutterstock

High interest rates over the last 12 months have reduced purchasing power and made borrowing more expensive for Canadians. But the outlook isn’t all doom and gloom for cottage owners and cottage buyers to-be.

Last year, the Bank of Canada raised its key interest rate seven times to 4.25 per cent, its highest level since 2008, in effort to cool consumer spending and lower inflation. Canada’s five major banks moved to increase their prime lending rates 50 basis points, which increases borrowing costs for anyone with a variable rate loan.

In December, the Office of the Superintendent of Financial Institutions (OSFI) announced it would keep the minimum qualifying rate—a mechanism to test whether borrowers will still be able to afford their mortgage if interest rates rise—for uninsured mortgages unchanged at 5.25 per cent.

“In an environment characterized by sustained high inflation, rising mortgage interest rates, and potential risks to borrower income, it is prudent that lenders continue to test borrowers for adverse conditions,” said Tolga Yalkin, the OSFI assistant superintendent for Policy, Innovation, and Stakeholder Affairs, at a media briefing last month.

While the federal banking regulator’s stress test still hovers around 5 per cent, cottage buyers must show they can pay interest payments at 7 per cent—which reduces the size of a mortgage buyers can qualify for, says Ottawa-based mortgage broker Andrew Thake.

Experts say that the high interest rates have worked as intended to slow the demand for big ticket items such as housing and vehicles. Home sales in Canada declined by 3.3 per cent from October to November in 2022, according to CREA.

However, high interest rates have made paying off home and cottage mortgages a strain for those who have them and made it even more difficult for those who want to secure one.

For those looking to buy

Buyers looking for cottages who don’t qualify for a mortgage that is large enough to purchase the type of property they’re interested in may be able to qualify in a year and a half when the stress test rates go down. Those applying for a mortgage today will qualify for less than they would have, had they applied a few years ago.

“You’d either have to put more down, or you just have to settle for a smaller place,” says Thake.

Thake suggested that people looking to buy while interest rates are high could also look at a fixed-rate mortgage for a shorter period of time—think two or three years—and if rates settle down after that, they could look at renewing.

Sometimes, when rates go up, cottage buyers can find savings elsewhere. “Even though interest rates are a bit higher, the price of the cottage is probably substantially lower than what you paid a year or two ago in some markets.”

This month, the OSFI is reviewing Guideline B-20, which includes the minimum qualifying rate (MQR) and other mortgage lending measures. The office launched a public consultation on January 12, which will take place until April 14, 2023.

Among the measures the OSFI is considering are restrictions on how much banks can lend to people whose mortgage exceeds a certain percentage of their gross income. This is something banks already do, but the changes may include tightening up the restrictions, says Thake.

Other changes may also include new debt servicing coverage restrictions, which would limit how much borrowers’ mortgage payments comprise a percentage of their income. Currently, most banks limit a borrowers’ housing obligations to 39 per cent of their gross income, but some major banks push that to 49 per cent.

Additionally, the OSFI is considering implementing a new minimum interest rate that is applied in debt servicing calculations.

“They want to reduce risk in the industry. The OSFI is worried about exposure to heightened risk from a lot of debt, plus a potential recession and high interest rates,” Thake said. “They want to reduce the probability of borrower default.”

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Buy the Way: An unusual mortgage arrangement allowed this writer to buy a 320 sq. ft. getaway

Photo by Jim Moodie

The search: As the child of canoe-toting itinerants, sharing a tent with my sisters or the back of the Volvo wagon with our epileptic dog, I dreamt as a kid of a cabin to one day call my own. There was a secluded point on one of the Algonquin lakes we frequented in my youth where you could make out the remains of an old ranger’s abode.

I paced it off one time, two feet per step. It was 16-by-20. That, I thought, would be perfect for me.

Finding my 320 sq. ft. of bliss, on a 2.6-acre nook of Panache Lake, Ont., turned out to be a cinch. It popped up immediately in an online search in the fall of 2017 and, within a week, the owners had accepted my $180,000 offer (about 10 per cent less than the asking price)—conditional on financing. That’s when the real hunt began.

The first banker I approached advised me to “walk away from it,” citing the lack of amenities and a driveway as cons. Needless to say he wouldn’t give me a mortgage; nor, he predicted, would any other institution. That proved true when the credit union also shot me down.

My dream shack, I learned, fell into the category of a Type B cottage, being wood-heated, uninsulated, and unequipped with a water filtration system. These types of rustic getaways are trickier to mortgage than a Type A, which have permanent foundations and heat sources, along with year-round access. It’s okay if your Type B sits on blocks—or even rocks, as is the case for mine—but most banks will balk if you don’t have a proper chamber for ablutions (a.k.a. an outhouse won’t cut it).

I turned to Durham-based broker Steve White, who looked far and wide, including among B- and C- lenders—outfits or individuals who might not be so picky about things like a three-piece bathroom, the absence of which was a sticking point for the A contingent, owing to mortgage insurance rules.

The compromise: White exhausted all his options but suggested, as a last-ditch, I might propose a vendor take-back mortgage. “A what?” I said. This alternative, he explained, is like an owner holding a mortgage, except that the buyer in a VTB scenario obtains title to the property and can put it back on the market, if so desired, at any point, as long as they pay off the balance owed to the previous owners. In a nutshell, it involves the seller agreeing to become the lender, and getting paid off, with interest, over a period of time, instead of all at once.

The concept was new to the sellers too. They hadn’t done anything like it, or even heard of it for a cottage. The couple gave me a tour of their Panache Lake place before I made my offer. Because they were selling privately and they had met me, our arrangement seemed trustworthy.

The owners confessed that they still did a bit of digging on me (thankfully I only have one speeding ticket and have mostly made fans through my journalism) before agreeing to the scheme, which effectively made them my bank.

They had to assume a certain risk, but they said that they wanted to sell to a nice person who would enjoy it. In the end, it’s still a business transaction, so the couple had to do their homework. Having a formal mortgage agreement in place was important to ensure both parties had some security.

The silver lining: I got my cabin on a secluded point. The sellers got a smaller capital gains hit, as the gain gets spread out over a period of years. I didn’t have to install a septic field or holding tank, as a traditional lender would have required. The previous owners got a pretty good sense that I was in this for the long haul and wasn’t going to rent the place or flip it.

The interior of Jim Moodie's cabin
Photo by Jim Moodie

Bonus: They left behind a bunch of cassette tapes and don’t mind that I am enjoying them to this day.

Owner advice: The pros and cons of a vendor take-back mortgage

PRO: A vendor take-back mortgage will only intrigue those sellers who can afford to get their money over time. They will get extra income, but may not want the spectre of their borrower potentially defaulting.

CON: For the buyer, it is typically more costly; the interest rate and repayment schedule are up to the people who are willing to back you. (I got 6 per cent over 20 years.) But if done correctly, a VTB is really no different than a bank mortgage.

PRO: You hold the deed, and the deal can be structured so that you can pay out the lender at any time, without penalty.

Have you recently purchased a cottage? Tell us about it: edit@cottagelife.com.

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Rising interest rates spurs renewed interest in vendor take-back mortgages

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Canadian cottage prices are still at record-highs despite the economy inching towards a recession. That’s why cash-strapped buyers are increasingly turning to an alternative financing options to purchase a cottage, including vendor take-back (VTB) mortgages.

With a VTB mortgage, the property seller is the lender. “No bank or mortgage broker is necessary with a VTB,” says Andrew Thake, a mortgage broker in Ottawa. “It’s essentially a private loan agreement between a seller and buyer.”

A VTB is often utilized as a second mortgage that supplements an initial mortgage from a traditional lender such as a bank. “The VTB can bridge the gap when a bank is unwilling to finance the entire purchase price of a property, and the buyer doesn’t have enough of a down payment to cover the rest,” says Thake.

Because conventional mortgage interest rates are on the rise, Thake adds it’s actually sellers who typically instigate a VTB to help close a sale when they’re having trouble finding a buyer. For example, buyers might struggle to qualify for mortgages on unique cottage properties that don’t meet major lender requirements. “You see this especially with remote properties without much direct access, or cottages that lack potable water,” says Thake. In those cases, or in other scenarios where their cottage simply isn’t attracting buyers, sellers can entice offers in this tough economy by proposing a VTB with generous terms.

If the terms are right for both parties, a VTB is a win-win: the buyer is able to afford their cottage, while the seller successfully closes a property that would otherwise have no takers— with the bonus of earning added profit from the VTB interest.

For sellers who prefer a clean break once the sale closes, Thake cautions that a VTB can potentially lead to an unwanted ongoing relationship with the buyer. “They will be more inclined to ask questions like, ‘how do you winterize this?’ or ‘where did you put the lock to the shed?’ if their financial commitment to you extends beyond closing,” he says.

Thake also advises transparency with all other parties when a VTB is in place: a bank may adjust its financing if it discovers an undisclosed agreement between the seller and buyer. “If everyone knows the numbers, there aren’t any unwelcome surprises.”

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Cottage Life

RBC predicts recession could hit early next year. Here’s who will be most affected

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The Royal Bank of Canada (RBC) has bumped up its recession prediction. Previously, the bank suggested that the Canadian economy might experience a moderate contraction in 2023. But in a report published on October 12, experts are now saying that Canadians should expect the recession to hit in the first quarter of the new year.

The exact date remains vague as experts have difficulty nailing down when a country enters a recession. Most define it as two consecutive quarters of declining gross domestic product. A more obvious sign is a surge in unemployment.

But what does a recession mean for cottage owners? According to Claire Fan, an RBC economist and one of the authors of the report, it could make owning a cottage more expensive.

Canada’s inflation rate remains aggressively high, sitting at seven per cent. This means that demand is still outpacing supply. The Bank of Canada is working to lower inflation to two per cent by raising interest rates. On September 7, the bank raised its policy interest rate to 3.25 per cent.

This makes it more expensive for Canadians to borrow money, including cottage mortgages. Whether a cottager’s mortgage payments will be impacted during the recession depends on the type of mortgage they’ve taken out, Fan says.

“A fixed-rate mortgage would see a much smaller impact from rising interest rates than a variable mortgage,” she says. This is because a fixed-rate mortgage is locked in for a certain number of years at a set interest rate, keeping monthly payments consistent. Whereas the monthly payments for a variable mortgage fluctuate with the Bank of Canada’s interest rates. However, a cottager with a fixed-rate mortgage could see a significant jump in their payments if their contract comes up for renewal when interest rates are still high.

Presently, there are no signs of interest rates going down. RBC says it expects the Bank of Canada to raise its policy interest rate to four per cent before the end of the year as it continues to fight inflation.

The rising interest rates are having a cooling effect on Canada’s real estate market, including cottages. After the cottage real estate boom of 2020 and 2021, high mortgage rates are starting to slow sales.

According to RBC, property resale across Canada has dropped by 36 per cent since February. Despite the drop, cottage prices remain similar to their 2021 levels. But RBC says it expects the nationwide benchmark property price to drop 14 per cent by next spring. This could make it a good time to buy a cottage, if you can qualify for a mortgage.

Besides higher mortgage rates and a slower real estate market, a recession could also make day-to-day purchases more expensive for cottagers. Fan says the high inflation rate is putting price pressure on everyday goods, such as food and gas. If it costs $100 in gas to drive to the cottage, owners may reconsider the trip.

Plus, RBC says that between interest and inflation rates, the average household’s purchasing power is expected to decline by $3,000 in 2023. Purchasing power is the amount of goods and services a household can buy based on their income. “If a household buys the same things again next year, how much more would it cost? And if their debt levels stay fixed at where they are today, how much more could they be expected to pay for those liabilities?” Fan says. To calculate this decline in purchasing power, RBC looks at the inflation forecast and the average household’s gross disposable income.

Another recession issue cottage owners need to be aware of is job loss. RBC predicts that the jobless rate will reach seven per cent by the end of 2023. If a cottage owner lost their job, it could make it difficult to afford mortgage payments. However, thanks to an excess of job openings caused by the pandemic, RBC expects job loss to be moderate in 2023 compared to past recessions.

All this to say, the recession won’t be distributed equally, leaving some cottagers unaffected. “This will weigh most heavily on Canadians at the lower end of the wealth spectrum, particularly those whose disposable income has faded alongside pandemic support,” RBC says.

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Cottage Life

Halal mortgage company plans to expand to cottages in the next year

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Rising interest rates have caused many Canadians to shy away from obtaining a mortgage. But that isn’t the case for the Canadian Halal Financial Corporation’s customers.

Thomas Lukaszuk, a former cabinet minister and one of the founders of the Canadian Halal Financial Corporation, says they’re still seeing dozens of applications filter in each week. “We launched this program on December 24, 2021,” he says. “On December 25, we had 167 applications filed.”

The reason for the Edmonton-based company’s ongoing success is that they’re catering to the underserved Muslim community.

Under Islamic law, Muslims aren’t allowed to accept or pay interest—the act is considered exploitative. That makes it difficult for a Muslim person to buy property. Financing options tend to be limited to traditional lenders, such as banks, who charge interest and use the money obtained through mortgages to invest in businesses that don’t align with Islamic tradition, such as cannabis shops and alcohol manufacturers.

As a result, many Muslims are left looking for an alternative. “Our clients are medical doctors, lawyers, people with very high incomes, but they’ve never had enough disposable cash to buy a house. So, either they’re renters, they have entered into informal arrangements with family members, they borrow money from each other, or they pool money until one family buys a house,” Lukaszuk says. “But it’s very laborious and extremely time consuming to do that.”

Looking to solve this problem, representatives from the Al Rashid Mosque in Edmonton, the first Mosque in Canada, approached Lukaszuk in 2019 to discuss the possibility of introducing mortgages that did not involve interest.

Lukaszuk had worked closely with the community during his time as a politician and had since been involved in building projects, familiarizing him with the mortgage industry. With over a million Canadians identifying as Muslim, it was clear to Lukaszuk that there was a need for trustworthy Halal financing.

Lukaszuk and his partner, John Stainton, a lawyer and businessman, spent the next two years working with the Al Rashid Mosque to iron out the details of acceptable financing. According to Lukaszuk, the group spent hundreds of thousands of dollars in legal fees, ensuring the mortgages could be upheld in Canadian court. The group even travelled to Al-Azhar University in Cairo, Egypt—one of the oldest Islamic universities in the world that plays a key role in overseeing Middle Eastern banks—to receive a pronouncement saying that the company was 100 per cent compliant with Islamic law.

Other Halal financing companies do exist in Canada, but few are as regulated as the Canadian Halal Financial Corporation. Each financing contract is audited by a religious committee who certifies that the transaction is compliant.

When an application comes in, the Canadian Halal Financial Corporation calculates the profit it expects to make on the transaction. It then adds that number to the principal and divides the amount among a certain number of monthly payments. This way, the monthly payments don’t fluctuate as they would with interest rates.

The borrower must also pay a minimum of 25 per cent of the property’s market value or purchase price up front and show that they have good credit history and sufficient income to afford the monthly payments.

To ensure the transaction is halal, the company doesn’t allow any third parties to enter into the contract. “We are the lender, so there are no secondary contracts, and there are no insurances on our mortgages,” Lukaszuk says.

Rather than borrowing from banks, all of the money used for the mortgages comes from the Canadian Halal Financial Corporation’s own resources, including investments in pension plans and private wealth funds. Each investment is reviewed by a committee of Islamic finance scholars to ensure that it’s compliant.

Providing Halal loans has made a significant difference to the community. In 2012, Nadeem Rahman, a member of the Al-Rashid Mosque, moved his family from the Greater Toronto Area to Edmonton so that his kids could get a better education. With no Halal loans available, he was forced to rent.

“I searched a lot,” Rahman says. “I saw that there was an organization in Manitoba providing Halal mortgages, but not in Alberta at all.”

Rahman’s family was living in a neighbourhood close to the mosque and his kids’ school, but it wasn’t ideal. Rahman laughs when he says he always wanted a house with an attached garage. “The weather here is crazy,” he says, referring to the winters. “As you age, it’s very difficult to go out, clean your car, and then take your family out.”

When the Canadian Halal Financial Company launched, it opened doors for Rahman. He secured a mortgage and moved his family into a detached home with a double garage.

He’s thankful to the company, but he hopes it continues to expand, offering loans on other things, such as cottages, campers, and cars. “There are a lot of people who want to buy something, but they still can’t do it,” he says.

Lukaszuk is well aware. While the company deals primarily with principal residence mortgages, he says over the next year, the company plans to expand across Canada and start offering financing for all types of properties, including cottages.

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Cottage Life

Is it time to switch from a fixed-rate to variable-rate mortgage on your cottage?

Photo by Amnaj Khetsamtip/Shutterstock

With the cost of borrowing on the rise, cottage owners might wonder if now is the right time to switch from a fixed-rate mortgage to a variable-rate one—or continue to weather the storm until borrowing rates begin to cool. 

After cutting interest rates to near-zero levels at the start of the pandemic to encourage spending, Canada’s central bank has hiked interest rates five times this year to tame soaring inflation, which has risen to its highest level in decades. 

On September 7, the Bank of Canada raised its key interest rate to 3.25 per cent, triggering higher borrowing rates for homeowners who are up for renewal on their fixed-rate mortgages or ones with variable-rate mortgages. In an environment of rising rates, more of your payment goes towards interest, which means it will take you longer to pay down your mortgage. (For example, as of writing, borrowers with TD Bank can expect to pay 5.24 per cent on a five-year fixed mortgage or 5.15 per cent on a five-year variable mortgage.)

Andrew Thake, a mortgage broker based in Ottawa, cautions cottage owners against getting swept up in the panic of rising rates. First and foremost, Thake says anyone with a variable-rate mortgage on a cottage should call their mortgage broker, not their bank. “A broker can give them a broader scope of the options available at their lender and dozens of other lenders.”

Thake says some lenders may fix the payment on the variable interest rate mortgage. “There are a select group of lenders where if rates go up and down, your payment stays the same,” he says. “And then within that payment, the mix of principle and interest changes.”

According to Thake, cottage owners can jump ship to a fixed rate for peace of mind, but it comes with risks. “If we look at charts of variable interest rates over the last 10, 20, 30 years, those who have gone with a variable rate tend to have done better than those who have gone with a fixed rate,” says Thake. 

The data backs this up. Canada Mortgage and Housing Corporation found that homeowners with variable-rate mortgages had paid an average interest rate of 4.14 per cent in the past 25 years, which is lower than the average 5.30 per cent fixed-rate holders paid over the same period.

There’s no penalty associated with switching from a variable to a fixed rate on your mortgage. “But if you ever want to switch from a fixed to a variable rate, you can’t do that without a penalty,” says Thake. “Plus, the penalties on fixed rates are typically quite large when we compare them to penalties on other types of mortgages.”

Thake says whatever decision you make, it’s important to make it with a long-term view in mind. “If you start to time the real estate market, it would be like timing the stock market, and most people don’t fare too well with that kind of stuff.”

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Cottage Life

How to successfully budget for a cottage (yes, you can do it!)

Photo by Shutterstock/Billion Photos

So you’re thinking of dipping your toes into cottage ownership. But where to start? Is it the same as buying a house? What’s involved in a cottage mortgage? Are there other fees you need to consider? Don’t worry, as long as you budget appropriately, cottage ownership isn’t a mystery. We spoke with a handful of budgeting experts to outline everything you need to know to financially prepare for owning a cottage.

Figure out what kind of cottage you want

The first step in budgeting for a cottage is narrowing down the type of property you’re interested in. Are you looking for a waterfront cottage or a cabin in the woods? Do you want a four-season place or somewhere only accessible during the summer? What about location? Are you hoping to buy a three-bedroom cottage in the heart of Muskoka or something rustic north of Timmins?

All of these decisions will impact the price. Popular locations, such as Muskoka, will be more expensive. Waterfront will also hike the cost, especially if you’re looking for a sandy shoreline perfect for swimming with good sun exposure. And the more bedrooms and bathrooms, the higher the price tag.

Our experts say that you need to be realistic about what you can afford. You may have your heart set on a $1 million property in the Kawarthas, but does your income allow for that kind of cottage? Take the time to browse through listings or meet with a realtor. This will give you a better idea of what type of properties are available and how much they cost.

Budget for the cost of cottage ownership

If you’re having trouble figuring out how much you should spend on a cottage, our experts suggest looking at your cash flow. Subtract your expenses, including your phone bill, your mortgage payments, even your retirement savings, from your income. Whatever’s left is your cash flow. Do you have an extra $1,000 a month to pay off a $200,000 cottage mortgage?

You also need to factor in the other expenses that come with owning a cottage. As any cottager will tell you, they require constant upkeep and repairs. Plus, you have hydro bills and cottage association fees. Not to mention property taxes, which will go up as your property increases in value. These extra expenses can amount to several thousand dollars each year.

If you want to secure a mortgage for your dream cottage, you’ll need to show that you can afford these expenses.

Securing a mortgage

When you’re applying for a cottage mortgage, it’s all about your debt-to-income ratio, says Andrew Thake, a mortgage broker in Ottawa. This means that to be pre-approved for a mortgage, you need to prove that you pay off your debts on time and that you have enough income to cover future debts.

Lenders are looking for good credit scores, Thake says, somewhere around 680 or higher. “Even if you have $100,000 on your credit cards, that’s fine, as long as you’re paying them on time,” he says.

Savings, on the other hand, won’t do much to sway lenders into giving you a loan. You could have $1 million in your bank account, Thake says, but if you default on your credit card payments, the lender isn’t going to trust you to pay back your mortgage.

Thake adds that if you’re buying a three- or four-season cottage, it’s the same process as securing a mortgage on a house in the city— it requires a five to 10 per cent down payment. If, however, you’re looking at something more remote, like a cottage on an island or a property without running water and electricity, it can be harder to find lenders. When you do find a lender, the down payment will likely be closer to 20 per cent, plus higher interest rates. Take this into consideration when figuring out the type of property you want.

Consider your buying options

You’ve calculated your cash flow, and maybe it isn’t quite enough to cover a second mortgage, plus associated cottage expenses. Don’t fret, there are other options, our experts say. Rather than going in alone, you could split the purchase with a family member or a friend. The plus side of this is you’re only paying for half of everything. It makes cottage ownership much more affordable. The downside is that you’re now having to negotiate weekends and figure out how much each of you is willing to spend on necessary upgrades, like a new dock.

Another option is renting. If you’re the type who likes to travel abroad and you only plan to spend a few weeks at the cottage each year, renting a property could be a more affordable option. You don’t have to worry about mortgage payments or upkeep, and you still get to enjoy the lifestyle. The downside is that you don’t get to go whenever you want, you’re limited to what’s available for rent, and you aren’t making an investment in a property.

If you do have your heart set on buying a cottage, keep prices more affordable by purchasing during the off-season, our experts say. Sure, cottages don’t suddenly go on sale over the fall or winter, but demand does drop off. This means you’re less likely to be caught in a bidding war, and you have more leverage to negotiate conditions with the seller.

Plan for future expenses

Don’t pull the trigger on your cottage purchase too soon. You may have figured out your price range and the type of cottage you want, and maybe you’ve even spoken to a realtor and mortgage broker about your options. But before you buy, take a deep breath and think about the future. Owning a cottage may seem like a dream now, but will it always be?

If you’re a young couple, have you thought about adding kids to the equation? A 2015 report compiled by MoneySense found that raising a child to the age of 18 costs approximately $253,946. Our experts point out that the cost of daycare is often underestimated, ranging from $12,000 to $15,000 per year. And if your kid becomes involved in sports or other activities, are your cottage weekends suddenly replaced with soccer sidelines?

If kids aren’t an issue, another factor to consider is old age. Is the cottage you’re looking at on a hill with steep steps down to the water? How will you navigate that as you get older? If you plan to pass the cottage on to someone, there may be a land transfer tax that needs to be paid. Or if you decide to sell the cottage before you reach old age, you’ll have to factor in capital gains tax on the property’s accrued value. Considering current real estate trends, this could amount to thousands of dollars.

These concerns aren’t meant to scare you off buying a cottage, but they are worth thinking about. Cottage ownership is a rewarding experience, and there are professionals, such as financial planners, realtors, mortgage brokers, and estate lawyers, who can walk you through each detail of the ownership process. But to ensure you don’t get in over your head, plan out your budget before you buy.