Saturday, May 26, 2007
A niche market that never seems to slow down.
Many of us have fond childhood memories of dad loading up the station wagon or van and heading out of town for a long week-end.
For some the destination was a lakeside campsite, but for many it was the summer cottage or cabin by the lake. For others it was a Winter activity that brought with it the long-anticipated excitement of driving up to the favourite mountain and throwing open the doors to a modest old ski lodge that one could call home for the next week or so. But unless one was lucky enough to inherit dad's cabin, the thought of purchasing one piece of recreational paradise can be daunting for most young families.
With prices still on the rise and demand for vacation homes brisk notwithstanding the general slowdown in real estate, there are a few bright lights for homeowners looking to pick up a second home or recreational property.
The Canadian Mortgage And Housing Corporation has instituted recently a new program that will provide Homeowner Mortgage Loan Insurance for borrowers with more than one residential property. This means that Purchasers can now obtain a mortgage insured by the Canadian Mortgage And Housing Corporation on a recreational property with as little as five percent down.
Traditionally getting institutional financing for a vacation property was a challenge, because lenders typically based their lending decisions on the risk of reselling this type of properties. As many second homes are located outside urban centers and, more often than not, in remote rural or coastal areas they might have limited resale potential, which from a mortgaging point of view increased the risk of financing. To mitigate this risk, lenders would require borrowers to put up more money down - as much as thirty-five percent or more, in fact. Even well-known and popular destinations such as Whistler, British Columbia required a minimum of twenty-five percent downpayment.
But lifestyles are changing and these changes affect decisions that real estate consumers make regarding how and where to live. So the Canadian Mortgage And Housing Corporation has made a move to put vacation properties within reach of more people. With a constant and steady increase in demand for this type of properties, the Canadian Mortgage And Housing Corporation has determined that the market is such that it is willing to insure lenders against potential losses. This is welcome news for those who have been longing to get a recreational property but did not want to wait until retirement to come up with the downpayment.
All Canadian Mortgage And Housing Corporation's products are permitted to be used with the Homeowner Mortgage Loan Insurance and since most major institutional lenders already have their own recreational property mortgage products, consumers have the flexibility to choose the type of financing that is right for them.
However, as with most types of financing, there are some key limitations that is important to be clear on. The purpose of the Homeowner Mortgage Loan Insurance is to make it more feasible for consumers to purchase a second home. It is important to distinguish between a second home and a rental property. The Homeowner Mortgage Loan Insurance is not intended to allow an investor to purchase a rental property with five percent down. The guideline states that at initiation the real capital asset that secures a mortgage insured by Canadian Mortgage And Housing Corporation must be intended for occupancy at some point during the calendar year by the borrower or a relative of the borrower on a rent-free basis. If a rental income is anticipated from the property at a future date, it will not be calculated for the purpose of assisting the Purchaser to qualify for the loan.
The location of the property is not restricted to major resorts or popular vacation spots, but there are some general requirements that apply as well. For instance, the recreational property must be suitable for and available for year-round occupancy. Properties that are constructed for seasonal use or have seasonal access are not eligible. As such, vacation cottages located on an island must have year-round bridge or ferry access. And finally, timeshare interests, life leases and properties in rental pools are not eligible.
The Canadian Mortgage And Housing Corporation's website can be found at http://www.cmhc.ca/
Real Estate Chronicle
Labels: REAL ESTATE