Mortgages for unconventional houses | Lowest Rates.ca
It is difficult to find hard data on the number of Canadians living in mini-homes, RVs, energy-efficient green homes, and off-grid log cabins, but there appears to be a growing interest in these types of non-grid homes. conventional.
In 2019, RV dealers began to notice that Millennials and Gen Xers were buying RVs in greater numbers, possibly due to unaffordable cabin prices. Small home builders saw an increase in quotes just after the pandemic began. And in recent years, the provincial and federal governments have dangled incentives for Canadian homeowners to build or renovate greener homes.
While many opt for these types of living spaces as a way to save money, they may very well need financing to make it happen. Getting a mortgage on an unconventional home isn’t entirely straightforward, however. Lenders, especially large banks, are sometimes reluctant to issue mortgages on unconventional properties. The mortgage industry loves consistency and comparability, and a custom cottage or off-grid log cabin may not tick any of these boxes.
The good news is that there are workarounds for adventurous borrowers desperate for a home on the road, on a small lot, or in the middle of nowhere.
Mortgage a mobile home
Believe it or not, recreational vehicle mortgages exist – and for good reason. The purchase price of a new motorhome can easily reach six figures, so many potential owners choose to finance their mobile homes rather than paying in full up front.
Major lenders like Scotiabank, RBC and TD offer specialty loans for recreational vehicles, as do some auto lenders.
According to Go RVing Canada, a coalition of RV manufacturers and dealers, the minimum down payment for an RV is typically between 10% and 20%, but some companies offer “no down payment” options to qualified applicants. Terms can also be as flexible as mortgage loans: Scotiabank, for example, offers borrowers up to 20 years to pay off their loans.
Of course, the real cost of an RV goes far beyond the mortgage paperwork. You have to take into account the cost of fuel and maintenance, maintenance, insurance and inspection. A motorhome may offer a freer and more adventurous life than a house in the suburbs, but its occupants are still tied to their check books.
Mortgage a small house
Financing a mini-house can be tricky. Jessica Whelan, co-founder and director of Rewild Homes, a British Columbia-based small house construction company, says it is difficult to get a mortgage for a small house through a major Canadian bank. Lenders look for comparable or similar properties when considering a mortgage application (which makes them easier to sell in the event of foreclosure) – and smaller homes are hard to categorize.
“The term ‘little house’ is still colloquialism,” says Whelan. “There is no set standard for what constitutes a small house. You see all kinds of different definitions depending on who you talk to.
Still, there are ways to get financing for a small house. Whelan says many Rewild Homes clients do so through a line of credit or personal loan. There are also a few lenders willing to offer financing for small homes, such as TinyLoans.ca and Purpose-Built Financing. Island Savings, a BC credit union, also offers financing for small homes, but not for DIY projects. Borrowers must order a mini-house from a manufacturer to be eligible.
Lenders don’t like financing off-grid cottages as they are more difficult to sell in the event of foreclosure
Another way to get a mortgage on a small house is to certify it as an RV and then apply for an RV mortgage, although this approach poses problems for anyone considering a custom build. “It has to be something that already exists,” says Whelan, “as opposed to a custom cottage that doesn’t exist yet.”
Borrowers who want to go this route would have to shell out around $ 10,000 for a third-party inspection agency, Whelan says, to inspect the custom cottage at several different stages of its RV makeover and make sure it meets requirements. all the right standards, like working taillights, water tanks and turn signals, even if they never hit the road.
Mortgage a green house
Green homes can range from a conventional bungalow adorned with solar panels to a hyper-efficient sealed home built to the highest energy efficiency standards in Canada. Borrowers looking for their own custom build may turn to a construction loan, sometimes referred to as a drawdown mortgage, for financing, but these often come with higher mortgage rates.
In the early 2000s, some major Canadian banks introduced “green mortgage” options. TD Canada Trust, for example, announced one in 2010 that offered green homeowners 1% off the interest rate posted on a five-year fixed-rate mortgage, as well as a discount of up to 1% of mortgage loan if borrowers bought solar panels. and other energy efficient equipment. In 2011, BMO launched its Eco Smart mortgage, which at the time offered a five-year fixed rate of 3.89%. BMO claimed that this amount was “significantly lower than comparable green mortgage products.” However, it is not clear whether TD or BMO still offer these mortgage options.
Generally speaking, green mortgages do not appear to be as numerous today. That said, Desjardins offers a savings initiative to borrowers who want to buy or build a green home. The Green Homes program offers up to $ 2,000 in cash back to build a green house certified LEED or the energy efficiency standards of Ontario or Quebec. It also promises future owners of green homes the lowest Desjardins rates – currently 1.75% for a reduced five-year variable rate mortgage.
And the Green Homes program of the Canada Municipal Housing Corporation (CMHC) reimburses mortgage loan insurance premiums for homes built to specific energy efficiency standards. Houses conforming to the R-2000 standard, considered 50% more efficient than a conventional house, are eligible for a 25% rebate, while houses built according to provincial efficiency standards – such as Novoclimat 2.0 from Quebec, Efficiency Manitoba’s New Homes or Ontario GreenHouse program – receive a 15% rebate.
Mortgage of an off-grid log cabin
Off-grid log cabins are a rustic alternative to living in a modern home or cabin, but they’re not the easiest to mortgage. As the Globe and Mail recently reported, lenders don’t like financing off-grid cottages because they are more difficult to sell in the event of foreclosure. However, there are a few lenders who are willing to do this. Kawartha Credit Union, for example, told The Globe that it is seeing more requests for off-grid financing likely due to its proximity to the cottage region of Ontario.
Depending on the specifications of a log cabin, borrowers may be able to secure a cabin mortgage. There are two main types of cabins, according to the website of Altrua Financial, a mortgage broker in London, Ontario: Type A (a fully winterized property in good condition accessible by an access road year-round) and type B (a structure that needs a full foundation, is not necessarily wintered and does not necessarily have year-round access).
Anyone looking for a mortgage on a Type A cabin wouldn’t need modern utilities to qualify – the cabin could even draw water from a lake or well – but the property would likely have to be entirely wintered with road access all year round. Meanwhile, a Type B cabin would include highly secluded rural properties, including cabins on an island, and any other structure that does not have year-round road access. An off-grid cabin could easily fall into either category. According to the Altrua Financial website, lenders treat cabins “on a case-by-case basis.”
The interest rates on cottage mortgages vary, but in general, they are higher than those on a conventional home because they are not occupied all year round. (For this same reason, home insurance rates on cottages also tend to be higher.)
As with all real estate decisions, financing an unconventional home is about more than monthly interest payments. Insuring a mini-house or a green house, managing the energy rebates for an off-grid cabin running on solar panels or just putting gas in the tank of a motorhome, it all adds up.
Finding mortgages for these less traditional style homes may not be easy, but it is possible if borrowers do their homework.