While owning a home in Toronto is an intelligent way to build wealth, acquiring a second property can help you earn even greater returns down the line. This applies to both vacation homes and dedicated-income properties.
Purchasing a second property in Ontario, while a wise investment, comes with specialized financial considerations. Namely, obtaining a new mortgage in addition to the loan on your existing home.
Looking to invest in a second property? Our strategic buying services can ensure you optimize your investment in any market circumstance. Call us at 416.441.2888 or reach us by email at [email protected].
Multiple Mortgages in Ontario
Just like your first home, you’ll need to obtain a mortgage if you’re looking to buy a second property. Separate from your existing mortgage, secondary financing allows you to strategically manage your finances as you pay off the property.
Financing a second property is a big commitment, therefore it’s important to be critical when determining which lender to work with as not all lenders will offer you the same interest rates. The interest on your mortgage will directly influence how soon you’re able to pay off the property, therefore you will want to be thorough when researching potential lenders.
Selecting the right mortgage is an essential factor in optimizing your investment. Check out these blog posts to know more about the process of obtaining a mortgage in Toronto.
- How to Find the Right Mortgage Lender
- The Mortgage Stress Test Explained
- What Not to do Once You Have a Mortgage Pre-Approval
Similar to a traditional home purchase, one of the largest costs you’ll need to account for in acquiring a second property is the down payment. However, there are key distinctions to be aware of. When you buy a second property, the down payment minimum will vary based on your intended use. Let’s take a closer look.
For a closer look at what costs you can expect during your second real estate purchase – click here to use our helpful buying calculator.
On Vacation Properties
If your second property is a cottage or vacation home, you’ll have greater flexibility in the down payment you’re able to make. Under government regulations, vacation properties are considered a secondary residence, even if you don’t live there full-time. As a result, buyers are able to make a down payment below the threshold of 20% and still be eligible for financing.
Where financing a vacation property generally differs from your existing home is in taxation and rebates. The Canadian Home Buyers Plan (CHBP) does not apply to secondary properties, therefore you will not be able to utilize your RRSPs when paying off your additional mortgage.
On Income Properties
One of the unique advantages of owning a dedicated investment property is your ability to use the passive income earned from the property itself towards the mortgage.
However, if you intend to earn income from a secondary property rather than make it your primary or part-time residence, different financing rules will apply. In this case, you will need a minimum down payment of 20% in order to qualify for a secondary mortgage. Like a vacation home, purchasing a secondary property for investment purposes does not qualify you for the CHBP.
In a rapidly-expanding city like Toronto, real estate makes an exceptional investment asset. For more investor-focused insights check out these posts from our blog.
- Is it Possible to Take the Risk Out of Real Estate Investing?
- Everything You Need to Know About Buying an Income Property
- 4 Real Estate Investment Strategies to Consider
Preparing For Additional Costs
If you intend to buy a second property – whether for investment purposes, leisure purposes, or both, there are other major financial considerations beyond managing a second mortgage. In addition to the down payment and costs of interest from lending, all the accessory costs of a home purchase, such as legal fees, property taxes, land transfer tax, and if necessary, mortgage insurance will also apply to your second property.
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Guiding Your Investment
If you’re looking to purchase a stunning vacation home or strategic investment property, our experienced, high-performing real estate team can guide you in the right direction when it comes to financing.
As established and well-connected agents, Christensen Real Estate Group helps our clients craft strategic financial blueprints to protect their most important investment assets.