Cottage or Second Home: Why the Down Payment Isn’t Always What You’d Expect

Raphaël had been looking for the right cottage for two years. He finally found it, on a lake in Quebec’s Eastern Townships. His bank had mentioned a 5% down payment, the same as for his house in Sherbrooke. Once the offer was accepted, the mortgage insurer asked whether the road was ploughed in winter and whether the cottage had a permanent heat source. Raphaël had no idea those two details could change his down payment by tens of thousands of dollars.

A second home can be insured by CMHC, Sagen, or Canada Guaranty just like a primary residence, with a down payment as low as 5% on the first $500,000. But that option only exists if the cottage meets specific criteria: year-round road access on a public road of reasonable quality, and a permanent heat source, electric baseboards or forced air, not just a wood stove or fireplace. Most cottages built or renovated for four-season use qualify.

A cottage reachable only by an unploughed road in winter, or heated only by wood, doesn’t meet those criteria. At Sagen, that type of property falls into a separate classification within the same program, with a minimum 10% down payment instead of the usual 5% and 10% tier. CMHC and Canada Guaranty, for their part, require year-round access and permanent heat to insure the loan, with no equivalent tier publicly documented for a strictly seasonal cottage. In practice, for a cottage that doesn’t check those boxes, insurability depends on the lender and insurer involved, not just the property’s price.

Before making an offer on a cottage, it’s worth knowing which category it falls into. The difference between 5% and 10% down, or between an insurable file and one that needs a conventional lender at 20% down, comes down to details that are easy to overlook before falling for a property.

A second home adds to your existing financial obligations. The bank calculates debt service ratios, GDS and TDS, based on both properties together, not just the new cottage. A borrower can also hold a maximum of two insured properties at once. The cottage has to stay for personal use, occupied by the borrower or immediate family, not rented out as a rental cottage.

The financial qualification, income, credit, debt ratios, stays the same as for a house. What changes is the level of detail lenders and insurers want on the property itself. The water source, a well instead of a municipal system, and the type of construction, concrete block for instance, are among the details that get closer scrutiny, and that can mean extra documentation.

It’s worth knowing these details before the offer, not after. Let’s talk it through together. As you probably already know, our services are free.