*This post was created in collaboration with Alpine Credits
When you take out a mortgage to finance a home purchase, you must come up with a portion of the purchase price yourself. In Canada, you need at least a 5% down payment when you buy a home. But what about a second home? Are the minimum requirements different?
How Much Money Do You Need For A Down Payment For A Second Home In Canada?
There are minimum down payment requirements to buy a home in Canada, whether it’s your first or second home. The down payment required depends on the value of your home and whether it’s an owner-occupied or non-owner-occupied home:
Owner-Occupied Homes
A home that you plan to reside in has the same down requirements as a first-time primary home purchase:
| Purchase Price | Minimum Down Payment Amount |
| Less than $500,000 | Minimum of 5% |
| $500,000 and $999,999 | – Minimum of 5% of the first $500,000 – 10% of the remainder exceeding $500,000 |
| $1 million or more | Minimum of 20% |
Keep in mind that down payments less than 20% will require CMHC insurance or mortgage default insurance. This type of insurance protects the lender in the event that you stop making your mortgage payments. However, homes priced over $1 million do not qualify for CMHC insurance.
Non-Owner Occupied Homes
Homes that won’t be occupied by the homeowner and are intended for rental purposes have higher down payment requirements. Rental properties require a minimum down payment of 20%
Do note that down payments must come from your savings, the sale of a property or as a non-repayable gift from a family member.
| Myth Busted: Second Homes Require A 20% Down Payment While it’s true that a 20% down payment is required for second homes that are NOT owner-occupied, you can make a down payment less than this amount if you plan to live in the home and rent out part of the property. |
How Much Is Mortgage Default Insurance?
Mortgage default insurance rates range from 0.6% to 4.0% of the purchase price of the home. This premium is typically rolled into your mortgage payments, though you can choose to pay it upfront in one lump sum at closing.
Further, if the home is located in Saskatchewan, Ontario, or Quebec, you’ll need to pay provincial tax on the premium, which must be paid upfront when you close on the house. This tax cannot be rolled into your mortgage.
Difference Between A Second Home Vs. Investment Property
There are differences between owning a second home, like a cottage, and an investment property that you can earn a profit from. Here are a few key differences between the two:
| Second Homes | Investment Properties | |
| Usage | Used mainly for personal use, such as vacations or secondary residence. | Purchased with the intention of generating income through rent or appreciation. |
| Down Payment | Down payment amounts are generally lower, often around 5% – 20% of the purchase price. | Down payment requirements are generally higher, often around 20% – 25%, unless the home is owner-occupied. |
| Interest Rates | Mortgage rates are usually similar to those for primary residences. | Mortgage rates are usually higher for investment properties due to increased risk of default. |
| Occupancy Requirements | You must occupy the home for part of the year (at least 14 days per year) while also living in your primary residence. | No minimum owner-occupancy requirements. If you occupy one of the units, the property would be considered owner-occupied. If all units are rented out, the property would be considered non-owner occupied. |
Can You Use The Equity In Your First Home As A Down Payment On A Second Home?
If you have enough equity in your primary residence, you can use it to put towards the down payment on a second home. In Canada, you can borrow up to 80% of your home equity, minus the remaining mortgage balance, depending on the lender.
However, do not that CMHC-insured mortgages do not allow borrowed funds as a down payment. To use your home equity, you may have you work with private mortgage default insurance providers like Sagen and Canada Guaranty.
A couple of ways you can access your equity is through a home equity loan or cash-out refinance:
Home Equity Loan
Home equity loans are flexible, so you can use the funds for a variety of purposes, including for a down payment on a second home. With this type of loan, you can borrow up to 80% of your home’s equity.
Like a typical loan, you’ll get a lump sum of money, which you’ll need to repay via installments over a set term. Your home secures the loan, so it’s important to keep up with your repayments to avoid the possibility of having your home seized due to loan default.
Home Equity Line of Credit (HELOC)
A HELOC works like a typical line of credit, except your home backs the loan. With a HELOC, you can access up to 65% of your home’s equity. Unlike a home equity loan, you can withdraw funds when you need them, and interest is charged only on the amount withdrawn. You can then use the funds to put towards a down payment on a second home.
Cash-Out Refinance
A cash-out refinance is another way to access your home’s equity. With a typical refinance, you would take out a new mortgage to replace your existing one, usually with new terms and a new rate. With a cash-out refinance, specifically, you would refinance your mortgage for more than what is still remaining on your mortgage balance, and then take the difference in cash.
What Do You Need To Qualify To Borrow Against Your Home’s Equity?
To be eligible to borrow against your home equity, you’ll typically need at least 20% equity in your home. Depending on the lender, you may also need a higher credit score and a lower debt-to-income (DTI) ratio.
In this case, you may have better luck working with an alternative lender. With Alpine Credits, you can still qualify for a home equity loan even with bad credit and low income, as more focus is placed on the equity you have in your home than your financial and credit profile.
How Much Should You Budget For A Second Home?
Housing costs for a second home are similar to what you’d pay for your primary residence. While the exact costs may be slightly higher or lower than what you’re paying for your first home, the expenses are relatively comparable:
Closing Costs
When you first purchase a home, you’ll need a lump sum of money to cover closing costs before you take possession of the home, which can include the following:
- Down payment
- Mortgage default insurance
- Land transfer taxes
- Title insurance fees
- Home inspection fees
- Legal fees
- Appraisal fees
- Utility setup and installation fees
- Renovations
- New furniture and household items
Closing costs range from 1.5% to 4% of the purchase price. So, for example, if the second home you’re buying costs $500,000, you’ll need to budget for roughly $7,500 to $20,000 upfront.
Ongoing Maintenance
Once you’ve taken care of the initial financing of the home purchase and closing costs, there are plenty of costs associated with operating and maintaining the home:
- Property taxes
- Repairs
- Maintenance fees
- Security
- Property management fees (if you plan to hire someone to maintain the home for you)
The key is to create a detailed budget so you know exactly how much money buying and owning a second home will cost you. A budget will also tell you how much money you’ll have left over after all expenses have been covered for your second home.
Final Thoughts
Down payment requirements for second homes in Canada are similar to what’s required for primary residences, as long as the second home is owner-occupied. If you’re buying another property to use as an investment, then you may need to come up with a lot more than 5%.
Second Home FAQs
Can I buy a second home with 5% down in Canada?
How much deposit do I need for my second home?
What are the tax implications of buying a second home in Canada?
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
