A reverse mortgage can help you get your dream cottage

June 11, 2015 · Print This Article

It’s officially summer in Canada. With summer comes a mass exodus from many cities to surrounding cottage country, where you can spend your time with fresh air, water, family and friends. But if you are retiring or close to retiring without that second property, you may feel like the clock has run out on purchasing a summer property. It hasn’t. A reverse mortgage can help.

Buying your cottage with a reverse mortgage

You can borrow up to 50% of your home equity with a reverse mortgage. Depending on the value of your home, this may not be enough to cover the cost of a second property. So why would you do this if you are going to get another mortgage anyway?

A reverse mortgage is not due until your home is sold and you don’t need to make monthly payments on it. Essentially, a reverse mortgage can help you significantly reduce the payments you make on a traditional mortgage on a cottage property, giving you more money to enjoy your retirement – and maybe some toys to go with the cottage.

But isn’t a reverse mortgage a higher interest rate than a traditional mortgage?

Contrary to popular belief, reverse mortgage interest rates are not that high. Take our current 6-month fixed rate at 4.29%. National Bank’s current rate is 4.4% for 6-month fixed rate mortgage. All of our current interest rates can be found here if you want to do a comparison.

Simply put, a reverse mortgage would not be a competitive product if interest rates were much higher than a traditional mortgage, so these rates will continue to be comparable.

Retiring to your cottage

If you already own a cottage and are planning on retiring in cottage country, you can take advantage of a reverse mortgage once the cottage becomes your primary residence – you can only take out a reverse mortgage on your primary residence and not on a secondary property. A reverse mortgage can help soften the blow of moving costs, upgrading your cottage to be a four-season home, and generally make your retirement much easier.

Converting a seasonal property to a year-round residence can be pricey. Extra insulation, furnace upgrades, sewage system upgrades, and water system upgrades can really add up. If you want to get a good idea of what you need to plan for, have a contractor give you a quote so you can avoid surprises.

Cottages are a buyer’s market right now

According to a recent article in MoneySense magazine, it’s a great time to buy a cottage. On average, prices of cottages haven’t increased significantly in 5 to 7 years, mostly due to the crash of the American economy in 2008, which resulted in many Americans needing to sell their Canadian vacation homes. However, this doesn’t mean a cottage is a bad investment; prices are due to start rising within the next couple of years due to the market starting to pick up a little again and the recovery of the U.S. economy.

Contact us to find out how you can take out a reverse mortgage to help finance that summer home you’ve always wanted.