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Second Home Mortgage

A second home can be a great investment for you and your family and can be used as a secondary residence or a place to get away for you and your family. When applying for a second home mortgage your lender will look at the property and your financial situation to determine if you are eligible. Generally, the higher your credit score and the larger your down payment is the better your mortgage rate will be.

When used properly a second home mortgage can allow you to invest in your financial future while taking advantage of the property straight away. However, before investing in a second home you should consider your financial situation and ability to maintain payments. For all your second home mortgage needs, trust the experienced team at Mortgage Squad Agents to find a solution that is right for you.

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    When you already own and live in your primary home and want to purchase an additional home with financing you apply for a second home mortgage. A second home can be a great investment tool that can generate income through rental and can grow in value over time through appreciation. They can also serve as a vacation or getaway home for you and your family. Since a second home mortgage is not for your primary home the lender requirements will typically be stricter and the mortgage rate may be higher than your primary mortgage. While there are many advantages to owning a second home there are some things to consider before you get a second home mortgage. Before you apply for a mortgage you should assess the cost and affordability, any tax and other financial implications, and whether you are looking for a vacation home or a rental property.
    There are two major types of properties that are eligible for a second home mortgage. The type of property will define what rules and allowances your mortgage loan can have. The property types are defined as secondary homes (Type A) and vacation homes (Type B), where a secondary home has many of the building requirements of a primary home while a vacation home is permitted to be only accessible and liveable seasonally. Secondary Homes (Type A) A kitchen, washroom with a shower, a common area, and a bedroom must all be present. Must have a permanent foundation, drinkable water, and must be considered livable during winter Building construction and maintenance must meet regulations, and there must be year-round access via serviced road. The property needs to be correctly zoned as residential, rural, or seasonal, and must be a freehold or condominium title. Timeshares or co-op ownership are not permitted. Vacation Homes (Type B) – In order to be eligible for a vacation home mortgage these properties must meet the same requirements as Type A properties except for: A permanent heat source is not required and the building foundation is not required to be permanent or installed in the ground. Road access may be seasonal and the property is permitted to be accessible only by boat. Running water is required but it is not required for it to be drinkable. For more information on vacation home mortgages, please check out our page on them. [Link to vacation home mortgage page]
    There are many advantages to owning an additional property that a second home mortgage allows you to access: Rental Income: One of the major uses for a second home mortgage is to buy a rental property for the purpose of generating income. The rental income generated can help to pay off the mortgage loan and provide you with a steady source of income. Property Value Appreciation: A second home mortgage allows you to invest in properties that you would expect to increase in value over time. The appreciation and the equity you build in your property can then be cashed in on when you sell your property or leveraged for other projects. Flexibility: Having a second property gives you flexibility to choose where you live, whether you want to put the property out for rent, and how long you want to hold on to the property for. These options give you flexibility to decide how you want to take advantage of your asset. Line of Credit: As you pay off your second home mortgage you can access the equity in your home in the form of a line of credit. A line of credit works is secured against your property and works in a similar way to a credit card, allowing you to use your equity for investments and other projects and pay it back over time.

    Tips for Getting a Construction Mortgage

    Because the burden to prove eligibility is greater on self-employed individuals, it pays to be well prepared before applying for a loan. The following should be considered before going into apply for a Self-Employed Mortgage:

    Risks of a Second Home Mortgage

    While there are many advantages to using a second home mortgage to purchase a second property there are risks and other considerations to keep in mind:

    • Cost: A second home mortgage is a loan, so it is a form of debt. The cost of a property can be high and will require a down payment when getting a mortgage to purchase. You will want to ensure that you can afford the additional risk and costs of getting an additional mortgage.
    • Affordability: In addition to the initial purchase costs of a second home mortgage you need to assess whether you can make the payments on the mortgage consistently in addition to any taxes such as a municipal tax or other property taxes.
    • Mortgage Fees: When applying for a second home mortgage there will be fees and costs associated with the application process. There may be appraisal fees and closing fees from your lender that you need to consider before proceeding.

    Qualifying for a Second Home Mortgage

    A second home mortgage is for properties that meet the building requirements to be considered a secondary home (Type A). The requirements are:

    • The building must have a permanent foundation that meets proper standards.
    • It must be zoned for use as either residential, rural, or seasonal.
    • The property title must be a freehold or condominium title. Co-op ownership or timeshares are not considered for a second home mortgage.
    • The property is required to have a bedroom, a common area, a kitchen, and a washroom with a shower.
    • The property must have roads that are serviced, and needs to be accessible year-round.
    • The property must be considered winterized, meaning it is liveable during winter.
    • Tap water for the property must be drinkable
    • Building construction standards need to be met and necessary maintenance must be up to date.

    For a property that meets these specifications as a second home (Type A) the minimum down payment for a second home mortgage is 5%. If the property value is greater than $500,000 the down payment must be 10% for the portion of the value that is above $500,000. The minimum credit score for a second home mortgage is usually at least 600 but may be higher depending on the property, your down payment amount, and the lender. The larger your down payment and the better your credit score the more favourable the mortgage rate for your second home mortgage is likely to be.

    For all your second home mortgage needs, trust the experienced team at Mortgage Squad Agents to find you a solution that is right for you.

    Is it harder to get a mortgage if I am self employed?

    Obtaining a Self-Employed Mortgage can be more difficult than a traditional mortgage as the borrower has to take extra steps to prove to the lender that they are capable of maintaining regular payments on their mortgage. It is possible that depending on the financial institution, that Self-Employed Mortgages are not offered at all. Where they are offered, there is also the chance that banks will significantly increase the interest rates for these loans, making them a more difficult consideration for borrowers. To give a better chance at being approved, lenders are expected to offer a large down payment, up to 20% or higher, as well.

    Another difficulty associated with Self-Employed Mortgages is the lack of a T4. A full time Employee can provide proof of income through a simple T4, however a self-employed individual must provide a stated income form, which shows the amount the potential borrower claimed to have earned, and then must provide documentation which can prove the stated amount is accurate.

    Lenders will also apply the Debt Service Ratio when considering your eligibility for a loan. This is a measurement which determines your ability to maintain regular payments on a loan after all your financial responsibilities have been considered. These include monthly bills, car loans, lines of credit, student debt and any other loans.

    If after considering these other factors the bank is confident that you are able to meet their requirements for regular payments, you will be eligible for a loan.

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    Commonly Asked Questions

    The minimum down payment for a second home mortgage is 5% of the property’s value that is under $500,000, and if the property is worth more than $500,000 then the minimum down payment must include 10% of the value of the property greater than $500,000.
    The mortgage rates for a second home mortgage are typically higher than for a primary mortgage. This is because they are considered to be a higher risk for the lender. The larger your down payment is and the better your credit score is the more favourable your mortgage rate will be.
    To get approved for a second home mortgage the lender will assess the property and your financial situation. You will need a down payment and the lender will need to know about your employment and your credit score. The minimum credit score will typically be at least 600 but many lenders will require higher than that.
    A second home will generally be required to be a certain distance from your primary home, this can differ depending on the lender but typically 50 miles away is considered far enough. If the home is too close to your primary home it may be considered as an investment property which will have different mortgage criteria.

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