Tag: mortgage broker

Categories
Cottage Life

Bank of Canada raises interest rates for sixth consecutive time. Here’s what it means for cottage mortgages

Photo via Bank of Canada/YouTube

The Bank of Canada is once again raising interest rates. On Wednesday, the bank bumped its policy interest rate up 50 basis points to 3.75 per cent. This is the sixth consecutive hike since March, and the highest the rate has been since 2008. Canada’s major banks, including TD, RBC, and CIBC, are expected to follow suit, raising their prime lending rates by the same amount.

The increase will make it more expensive for Canadians to borrow money and pay off loans, including lines of credit, student loans, credit card payments, and mortgages.

Why are interest rates going up?

Inflation remains well above the bank’s target goal of two per cent. By raising interest rates, the bank is attempting to discourage Canadians from overspending, in turn lowering the inflation rate.

In June, inflation hit a 39-year high of 8.1 per cent. Since then, the rate has eased to 6.9 per cent, largely due to a fall in gas prices. But the bank’s governor, Tiff Macklem, says this isn’t enough.

“We have yet to see a generalized decline in price pressures,” he said, during a press conference. “The economy is still in excess demand. It’s overheated. Households and businesses want to buy more goods and services than the economy can produce, and this is driving prices up.”

Countries around the world are seeing similar inflation rates as they emerge from the COVID-19 pandemic. The global supply chain continues to be disrupted by COVID lockdowns in China and energy shortages caused by Russia’s attack on Ukraine. As a result, supply is diminished, which causes prices to rice.

“As economies slow and supply disruptions ease, global inflation is expected to come down,” the bank said in a statement.

How long will the rate hikes last?

The bank predicts that inflation will return to its target of two per cent by the end of 2024. But to make that happen, Macklem said that interest rates will need to increase further. “How much further will depend on how monetary policy is working to slow demand, how supply chains are resolving, and how inflation and inflation expectations are responding to this tightening cycle,” he said.

Macklem pointed out that the higher interest rates are already working. Demand has slowed in interest rate-sensitive parts of the economy, including housing and other big-ticket items, such as vehicles. He added that if current trends continue, future interest rate hikes may be smaller.

“We are getting closer, but we’re not there yet,” Macklem said.

What does this mean for mortgages?

Higher interest rates will put an added strain on mortgage holders, especially those paying off both a home and cottage mortgage.

“If you purchased [a fixed-rate mortgage] during the first part of COVID, or even just before COVID, you would have seen record-low interest rates,” said Robin Dillane, a mortgage broker with Haliburton Mortgage Services. “That’s fine until the mortgage comes due. Then it’s going to be really hard.”

Current fixed-rate mortgage holders could see their interest rates jump by two to three per cent when it’s time to renew, adding several hundred dollars to their monthly payments.

“During COVID, we were down to about 1.9 per cent on some fixed rates. Now you’re seeing percentages in the fives. And if they continue to raise, you’d probably see closer to the sixes,” Dillane said. “It’s going to make it hard for the average person.”

As for variable-rate mortgages holders, their monthly payments are already on the rise. Variable-rate payments fluctuate based on the bank’s interest rates. As rates continue to go up, there’s concern that variable-rate mortgage holders will pass their trigger rates. This is when interest rates have gone up so much that an individual’s monthly payments are only covering the interest and aren’t paying down any of the principal loan.

In August, RBC revealed that 80,000 of its customers were about to pass their trigger rates, adding an extra $200 to customers’ monthly payments.“Everybody’s is different, and you should be checking in your contracts for those trigger rates,” Dillane said.

Higher interest rates will also make it more difficult for people to pass the stress test to secure a mortgage. The stress test determines whether an individual will be able to pay their mortgage if interest rates increase. To qualify, they must show that they can pay the benchmark rate of 5.25 per cent or their lender’s rate plus two per cent, whichever’s higher. Since interest rates are up, it’s likely the lender’s rate will be higher. If the individual can’t afford mortgage payments at this rate, the bank won’t loan the money.

Dillane pointed out that there is a way around this. If the individual opts for a variable-rate mortgage, some banks will offer the loan at below their prime lending rate, making it easier to qualify. The only problem is that a variable-rate mortgage is much riskier as you can’t predict the monthly payments.

How do you prepare for interest rate hikes?

Fixed-rate mortgage holders worried about rising interest rates should calculate how much their monthly payments will go up at the time of renewal, based on current interest rates, Dillane said, then increase their monthly payments to that amount.

“The extra money that you’re putting on your mortgage, because you’re contracted at a low rate, goes directly off the principal, so when that mortgage is renewed, you actually have a lower principal amount,” she said. “If the rates are higher, you’re kind of buffering to still be able to afford that mortgage.”

By choosing to increase payments, it not only helps pay down the principal faster, but also gives the mortgage holder a sense of control over their budget, rather than having the increase forced on them, Dillane said.

While variable-rate mortgage holders can’t operate on the same predictability, they can adjust their payments. Work in round numbers, Dillane suggested. For instance, if the monthly payment is $1,125, round it up to $1,200. “You just built in an extra $75,” she said, “and you won’t even notice it over the course of the mortgage.”

Paying more up front may sound daunting, but according to Dillane: “It’ll reduce the amount of stress that you’re going to have when you have no option but to increase your payments.”

Categories
Cottage Life

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

Photo by kenchiro168/Shutterstock

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.

Categories
Cottage Life

Here’s what the Bank of Canada’s latest interest rate hike means for borrowers

Photo by Shutterstock/sockagphoto

It might be time to reassess that budget—the Bank of Canada has once again hiked interest rates.

Last Wednesday, the country’s central bank raised its policy interest rate by 75 basis points to 3.25 per cent, the highest it’s been since 2008. Canada’s biggest banks, including TD and RBC, followed suit, raising their prime lending rates by the same amount.

By raising interest rates, the Bank of Canada is impacting the amount of money Canadians are able to borrow in the form of mortgages and lines of credit, as well as increasing the amount of interest customers have to pay on loans.

This is the fifth rate hike in approximately six months. The Bank of Canada continues to increase interest rates in an attempt to tackle runaway inflation. Earlier this summer, the inflation rate hit a 39-year high of 8.1 per cent. Thanks to a drop in gasoline prices, inflation has since eased to 7.6 per cent. But the bank says this isn’t a reason to relax.

“That has helped bring the pressure down on inflation,” said Carolyn Rogers, the Bank of Canada’s senior deputy governor, during a press conference. “Apart from that, though inflation has broadened and increased. Certainly the raises have helped, but commodities in general remain volatile, so there’s still a chance that we get pressure back up in the other direction.”

The war in Ukraine and COVID lockdowns in China continue to impact the supply chain, preventing manufacturers and suppliers from meeting demand. Rogers explained that demand in Canada remains strong, but to reach the bank’s goal of two per cent inflation, it needs to continue curbing demand through interest rate hikes until it balances with supply.

“We have seen some early signs that monetary policy is working. Interest-rate sensitive parts of the economy—the housing market being an obvious example—have seen some pull back,” Rogers said.

The one scenario that the bank is concerned about is if Canadians start to make long-term decisions based on the idea that a high rate of inflation is here to stay. “That’s the entrenchment that we talk about that would be damaging to the economy,” Rogers said. “If that starts to occur, it makes inflation much harder to get down. It means monetary policy has to do more and rates have to go higher to get inflation down.”

How long will the rate hikes last?

When asked whether interest rates are expected to keep increasing, Rogers was cagey with her response. “We’ll take the next decision when it comes,” she said. The bank is expected to reassess its rates on October 26.

In a report published around the end of August, CIBC theorized that the 3.25 per cent rate should remain throughout 2023 with no additional hikes. However, CIBC recanted this theory in a later report, saying: “We’ll be lifting our target for the end of this tightening cycle, with another 25-50 [basis points] on tap for October. Even in October, the Bank is likely to want to leave the door open for a further move until it gets more definitive evidence of a deceleration in growth and inflationary pressures. We see that as likely to be in evidence over the next two quarters.”

Rogers mirrored this statement during a speech last Thursday, saying it will take time to get inflation down and there could be bumps along the way.

What does this mean for mortgages?

Many mortgage holders across Canada are feeling the effects of increased interest rates. A mortgage is one of the most common types of debt held by Canadians. According to the Canadian Financial Capability Survey, in 2019, 40 per cent of Canadians had a mortgage, with the median amount of those mortgages being $200,000.

For those with a fixed-rate mortgage, the interest hike won’t affect them until they have to renew. CIBC estimates that approximately one-fifth of mortgage holders have to renew their fixed-rate contract in a given year.

As for mortgage holders with a variable rate, 70 per cent have fixed payments, meaning the payments don’t change, only the amortization period does. The other 30 per cent are feeling the immediate impacts of the rate hikes.

There is concern with the fixed-payment, variable-rate mortgages that the latest interest hike has caused many of them to reach their “trigger rate”. This means the interest rate has gone up so much that an individual’s monthly payments are only covering the interest and are not paying down any of the principal loan. If interest rates pass this trigger, monthly payments will go up. Those most affected will be individuals who took out loans in early 2020 when interest rates were at 0.25 per cent.

During a conference call discussing its third quarter earnings, RBC revealed that 80,000 of its customers are about to surpass their trigger rates, causing an average increase of about $200 per month. An individual’s monthly payment increase will depend on the size of the loan, the amortization period, and what the rate was when the customer borrowed the money.

Canadians may also have more difficulty qualifying for mortgages. Anyone making a down payment of less than 20 per cent on a property must pass Canada’s mortgage stress test. The test shows lenders that a borrower can make mortgage payments at either the rate offered by their lender or the Bank of Canada’s five-year fixed rate, whichever’s greater. As interest rates go up, so does the five-year fixed rate. It now sits at 4.33 per cent.

How do you prepare for interest rate hikes?

For those concerned about paying off their mortgage amidst interest rate hikes, the Canadian government suggests paying down as much of your debt as possible before an interest-rate increase. “If you have less debt, you may be able to pay it off more quickly. This will help you avoid financial stress caused by bigger loan payments,” the government said.

Other suggestions include cutting expenses so you have more money to pay down your debts, paying the debts with the highest interest rates first so that you’re spending less money on interest, consolidating debts with high interest rates into a lower interest-rate loan, and making sure you have an emergency fund to deal with unplanned costs.

As Rogers said during her press conference, the most important factor is to not let the idea of high inflation sway your long-term spending decisions, as this can negatively impact the Canadian economy

“The thing that the governing council is most focused on is getting inflation back to target,” she said.

Categories
Cottage Life

Everything you need to know to apply for a cottage mortgage

Photo by Shutterstock/G-Stock Studio

So you’re planning to buy a cottage. You’ve probably spent months perusing listings, figuring out what type of property you want, and meeting with realtors. The next step in purchasing your dream cottage is getting pre-approved for a mortgage. This can feel like a daunting process, especially if you’re already paying off a mortgage on your house. To help smooth the way, we’ve assembled all the tips you need to secure a cottage mortgage.

What does a broker look for in a cottage mortgage application?

It’s all about the debt-to-income ratio, says Andrew Thake, a mortgage broker based out of Ottawa. To gain a broker’s confidence, you want to show them that you have a good credit score—typically 680 or higher. To get a good credit score, you need to be paying off your debts on time, including credit cards and other mortgages.

“Even if they had $100,000 on credit cards, that’s fine, as long as they’re paying them on time,” Thake says. “As long as there’s enough income to cover the debt, someone could really have as many debts as they want.”

Savings are a great cushion when taking out a second mortgage, but it won’t do much to sway a broker into approving your application. “Whether you have $10,000 in the bank or $10 million in the bank, that’s nice, but it’s not a heavy application decision-making factor,” Thake says. A broker wants to see that you have the income necessary to cover the mortgage payments and any other outstanding debts.

What type of cottage is it?

Once a broker has pre-approved your mortgage application, they’re going to want to talk about the type of cottage you’re looking for and which lenders would work best for your situation. Traditional lenders, such as banks, like a multi-season place, Thake says. “A three-season or four-season cottage, it’s no different than if someone came and said, ‘I want to buy a condo downtown.’”

These are cottages that could be used as a primary residence with a secure foundation; access from a municipally-maintained road; a permanent heat source, such as a furnace or boiler; and potable running water—this includes a well or water from the lake run through a filtration system. These types of properties typically only require a five to 10 per cent down payment.

On the other hand, a summer-only cottage drastically changes your lending options. Cottages on islands or isolated, rural locations are less appealing to lenders because if you default on your payment, it’s harder for them to resell the property. This includes cottages that don’t have electricity or running water, and aren’t easily accessible by road.

In these circumstances, it’s unlikely a bank will lend you the money, so you may have to turn to a private lender, Thake says. This means a larger down payment (closer to 20 per cent) and higher interest rates (six to nine per cent).

RBC forecasts historic real estate market correction, including cottages

What’s the cottage being used for?

Um…relaxing? This may seem like an odd question, but not everyone buys a cottage to lounge lakeside and take in the surrounding nature. Some buyers may be planning to rent the cottage out, or renovate the property and flip it. These both affect the type of mortgage you’ll need.

If you plan to rent out the cottage, you’ll need to secure a rental property mortgage. This, again, may require a private lender, as opposed to a bank, and typically means a down payment of at least 20 per cent. The interest rate on the mortgage will also be higher. Generally, expect between one to three per cent more interest points on a rental property mortgage than on a standard mortgage.

If you’re renovating the cottage, you should be able to secure a standard mortgage unless the cottage is uninhabitable. In this situation, you’ll need to apply for a construction mortgage or a private mortgage from a private lender, Thake says. This again means a down payment closer to 20 per cent as well as a higher interest rate than a standard mortgage. If you renovate the cottage to the point where it is habitable, you may be able to refinance your mortgage and apply for better terms through a standard mortgage with the bank.

Can you predict the mortgage’s rates and down payment?

Not ready to put in an offer until you know the terms of the mortgage? A broker can help with that. If you’ve settled on the type of property you’re interested in, Thake suggests sending your broker sample listings of desirable cottages.

They don’t have to be cottages you want to submit an offer on. They don’t even have to be cottages in the area you want to buy in, Thake says. But having samples will help your broker secure your mortgage faster when you’re ready to buy.

“It’s a lot easier to have that live property example where we can send it out to a dozen lenders and get some sample terms, like rates and down payment amounts,” Thake says. “That way, when the client does find the place they want, it’s kind of like a clone to what they’ve sent us as the sample.”

How do you finance the mortgage?

When buying a cottage, the down payment for the mortgage doesn’t have to come out of your savings. If you already have a mortgage on your house, you can borrow equity from that mortgage to help pay the down payment. Here’s how Thake explains it:

Say you bought a house for $500,000 and you’ve already paid off $250,000 of that mortgage. That $250,000 that you’ve paid is considered equity that you can borrow from if needed. If you’re buying a $500,000 cottage, you could refinance the mortgage on your house and borrow $100,000 of that $250,000 you’ve paid (you can borrow up to a max of 80 per cent of the property’s value). You can then use that $100,000 for your cottage down payment. Borrowing that $100,000 bumps your house mortgage back up to $350,000, but it brings your cottage mortgage down to $400,000 without depleting your savings.

This may sound complex, but there aren’t a lot of secrets to cottage mortgages, according to Thake. “We really just want to make sure there’s enough debt to cover this new mortgage,” he says, “and if they are looking to borrow the down payment from their existing home, that there’s enough income to carry that as well.”

Buy the Way: A family of three shares a tiny home they can bike to

 

Categories
Cottage Life

Cottage mortgage payments could increase by 45 per cent in the next three years

Photo by Songquan Deng/Shutterstock

Rising interest rates could cause cottage owners who took out a variable-rate mortgage in 2020-2021 to experience a 45 per cent jump in payments by 2025-2026, said the Bank of Canada in its Financial System Review. The bank did specify that this number is hypothetical and is based on further increases to Canada’s mortgage rate.

Considering the bank increased interest rates by 50-basis-points in both April and June, however, the chances of further increases are likely. The bank intends to reassess interest rates in July.

By increasing interest rates, the bank is attempting to cool market demand and combat the elevated inflation level, which reached a 31-year high of 6.8 per cent in May. While intended to lower the cost of living, the increased interest rates are causing a spike in mortgage payments.

“It’s like red flashing lights in our face. [Mortgage rates] have been climbing so aggressively, fixed and variable,” says Andrew Thake, a mortgage broker based in Ottawa. “Fixed rates were in the one to two per cent range a few months back, and now they’re almost at five per cent with the major banks.”

A five-year, fixed-rate mortgage tends to be the most popular mortgage package, Thake says. This means that the property owner is locked in at a certain rate for five years. Therefore, a property owner who took a mortgage out before the interest rates started to increase is currently unaffected. But once those five years are up and the property owner has to renew their mortgage, they’re likely to see a major jump in payments.

Similar to the 45 per cent increase in high loan-to-income variable-rate mortgages, the Bank of Canada hypothesized that a high loan-to-income fixed-rate mortgage taken out in 2020-2021 would also increase by 2025-2026, jumping 26 per cent. Mortgages obtained in 2020-2021 are expected to see the largest increase because they were taken out when rates were at record lows.

At the moment, Thake says the fixed-rate mortgages are rising much faster than variable-rate mortgages, which fluctuate and are based off the Bank of Canada’s overnight lending rate. This means that a variable-rate mortgage is giving people more purchasing power.

“If a household made $150,000, they had no debt, their current home was paid off with 20 per cent down, and they’re using a variable interest rate, they would qualify for a $940,000 loan,” Thake says. “But if that very same client used a fixed rate, they would qualify for about $820,000. That’s a massive difference.”

For Canadians who did take out large mortgages during the pandemic, the Bank of Canada says that these highly indebted households are a vulnerability to the financial system, especially if household incomes don’t increase along with interest rates.

But Thake says it’s unlikely we’ll see a major spike in defaulted mortgages in the near future. This is because anyone who took out a mortgage had to pass the mortgage stress test. This test shows lenders that you’ll still be able to make your monthly payments even if interest rates rise.

To pass the stress test, you have to show your lender that you can meet the Bank of Canada’s minimum qualifying rate, which was increased from 4.79 per cent to 5.25 per cent in June 2021, and is based on the mode average of fixed rates posted over the last five years by Canada’s big banks, or you must meet the mortgage rate offered by your lender plus two per cent, whichever’s higher.

The issue, Thake says, is that since fixed-rate mortgages have climbed so aggressively, they now sit around five per cent, which when you add the lender’s two per cent makes them closer to seven per cent. This means that potential buyers won’t be able to qualify for as large a mortgage as they could in previous years.

Additionally, since mortgage rates are rising so quickly, potential buyers might be pre-approved for a mortgage one week, but then no longer qualify for that mortgage a week later after the rate’s been raised. To make sure you’re on top of increasing rates, Thake suggests working with a mortgage broker.

“When’s the last time your bank called you and updated you on rates?” he says. “A broker manages a client like a financial planner does. We have a pool of 500 clients, and they get day-to-day devotion. We only really earn our living if we service that client and everything goes through smoothly.”

Categories
Cottage Life

How to avoid falling victim to a bad cottage real estate deal in a hot market

Photo by fizkes/Shutterstock

Low inventory of recreational property is forcing buyers to compete against multiple-interested parties, often driving the cottage’s price well above asking.

With cottages forecasted to remain a hot commodity this year, according to Royal LePage’s 2022 Recreational Property Report, inventory across the country is expected to remain low, driving up the average price of a Canadian cottage by 13 per cent to $640,710.

“What we are seeing in this market is, generally speaking, fewer buyers are competing for the same property, but those buyers are highly qualified, very serious, and highly motivated,” explained Susan Benson, a real estate broker in Muskoka. “In almost all cases, they have lost out in a previous competing situation. So, by the time they get to one that they really want, they’re invested.”

To make themselves more appealing to sellers, many buyers are presenting firm offers, forgoing property research to close the deal fast and eschewing conditions, such as a home inspection. The issue with skipping these steps is that you could end up paying over asking price only to discover major problems with the property that will cost you extra.

No matter how badly you want a cottage, there are certain steps you shouldn’t compromise on. Here’s everything you need to do, to avoid falling victim to a bad real estate deal in a hot market.

Work with a local realtor

It may seem wise to save some cash by handling real estate negotiations yourself, but without a realtor there is a lot you can miss. “They will surround you with a team of experts and resources that can help guide you through what is a really challenging time [in the cottage market],” Benson says.

In particular, you want to partner with a local realtor, someone who knows what’s available in the area and can help you find the type of cottage you want. Knowledge of the area’s geography and nearby services makes a local realtor better equipped to brief you on any foreseeable issues with the property, whether the property’s overpriced, and whether it’s worth engaging in a bidding war.

Use a home inspector

The last thing you want is to purchase a cottage only to find out it has a cracked foundation, a rotting boathouse, or a long list of other problems that could require further investment. The best way to avoid any surprise renovations, Benson says, is to hire a home inspector.

“We’ll have a home inspector look online at the listing pictures just to see if there are any obvious red flags,” Benson says. “If our buyers really like the place, and we’ve gone to see it, we will try to arrange a second showing for the home inspector.”

The issue with this is that COVID has affected showing times. Previously, potential buyers routinely had an hour to look over the property, but in many cases, this viewing window has been shortened to 30 minutes.

“That’s a real challenge,” Benson says. “But [a home inspector] has a critical eye that can pick up on unanticipated maintenance costs, such as a boathouse and docks, to get a sense of the condition they’re in, and the condition of the crib or structural supports. If something’s wrong, that can be a really expensive unanticipated cost.”

Speak to neighbours

As a realtor, Benson says she often speaks with cottage neighbours on behalf of the buyer. “Now that we’re two years into COVID, there are many, many more people actually living full time in cottage country. So, it’s usually very easy to find a neighbour, and they’ll give you all kinds of insights.”

By speaking with neighbours, not only will you get a sense of what the area has to offer, but you’ll also get a better idea of who you’ll be residing next to. There’s always a chance that the neighbouring property could be a cottage rental known for hosting large, rowdy groups.

Research the property

Your prospective cottage may look great during the summer, but without proper research you could have no idea that it sits in a floodplain. Or, if buying during the winter, you may be won over by the four-season access, but what happens when the ice melts and you’re left with a weedy shoreline.

Neighbours can help provide this information, but Benson also suggests looking at a topographical map of the area to see if flooding could be an issue. While you’re at it, you should also research the property’s zoning information.

“You might think your cottage is in the middle of nowhere, but in fact, you’re near a proposed or approved development, particularly in proximity to places that are zoned under a resort zoning, or in proximity to a marina,” Benson says. “You want to make sure it’s the right location.”

Having a solid grasp of the property’s zoning will let you know whether you’re allowed to rebuild, renovate, or add any new structures. It’ll also avoid any nasty surprises, such as having to purchase the cottage’s shoreline or road access from the municipality.

Should you purchase the shoreline road allowance when you buy a waterfront property?

Choose a reliable mortgage broker

Similar to your realtor, a good mortgage broker should know the cottage market. That way, they can help you pick a financing plan that fits both you and your property’s needs.

“What you don’t want is to pay a premium price for a property and then have after-the-fact money problems that turn what was supposed to be a dream into an absolute nightmare,” Benson says.

This is particularly true for foreign buyers or anyone looking to use the cottage as a rental, she adds. “You really have to understand the tax implications of that.”

When choosing a mortgage broker, Benson says you need to make sure their focus is on you as a client. “What I would say about a really good broker is that they’re very responsive to questions and are willing to take the time to educate a buyer about the implications of what they may be borrowing…and are willing to look at options beyond a very specific portfolio of lending options. The broader the better.”