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More and more Canadians are choosing to buy a second property in retirement.  Some want to reap the rewards of a lifetime of saving and treat themselves to a vacation home. Others, on the other hand, view their second property as an investment, intending to rent it out and use the income in affording a 2nd property

Whatever your reasons for wanting to buy a second property, there are various ways you might choose to pay for it – let’s have a look at what those are.

PAYING THE DOWN PAYMENT – Affording a 2nd Property

Just like your first property, you’ll need a down payment for your second property. This can be as little as 5% but ideally should be higher – try aiming for 20%.

CASHING IN INVESTMENTS

One way that you may choose to make the down payment is by cashing in on investments. When considering this, however, caution should be exercised. Cashing in on investments in a taxable account can trigger taxes and OAS clawback, as well as potentially pushing you into a higher tax bracket. Taking large sums from your investments will also reduce the size of your portfolio, which can have a knock-on affect on your retirement income. Outliving savings is something all retirees should be conscious of, so think carefully before making large withdrawals that may deplete your pension pot too quickly.

TAKING OUT A HELOC

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured against your primary residence which allows you to access up to 65% of your home’s value. Taking out a HELOC to pay for the down payment can be a good option to avoid cashing in on investments, but they’re not without their limitations. It’s recently become more difficult to get approval for a HELOC, and many retired Canadians without a fixed monthly income have seen their applications denied. If you manage to get approved for the loan, be aware that you need to service it each month, which will have an affect on your monthly cashflow.

USING THE CHIP REVERSE MORTGAGE

Another way to afford the down payment on your second property is with the CHIP Reverse Mortgage. The CHIP Reverse Mortgage allows you to access up to 55% of your home’s value in tax-free cash, meaning it won’t trigger taxes or OAS clawback, or push you into a higher tax bracket. Unlike a HELOC, with a reverse mortgage you don’t repay what you owe until you move out of your home or pass away, so there are no monthly repayments eating into your cashflow. What’s more, depending on how much equity you have built up in your home and how much your home is worth, you may be able to pay off a significant amount of your second property – perhaps even paying for it outright!

PAYING OFF THE MORTGAGE

Unless you were able to pay for your second property outright, chances are you’ll have a monthly mortgage to pay in affording a 2nd property

If your second home is an investment property, you likely intend to rent it out. In this case, the rent you charge should be enough to cover your mortgage payments (and hopefully a little extra for you each month).

On the other hand, if your second property is a vacation home, you’ll need to factor mortgage repayments into your monthly budget. One way to get the best of both worlds is by renting your vacation property out for short-term holiday lets. This will help you cover some, if not all, of the mortgage payments, while also giving you the flexibility to enjoy your vacation home whenever you want. Want to know more about how the CHIP Reverse Mortgage could help you afford a second property? Contact us to learn more!

Things to Know Buying Rural. However, before you dive into country living, there are a few things you should know! Especially, how different it can be to qualify for a mortgage.

1. CHECK THE ZONING

When it comes to buying rural property, it is important to check how the property is zoned. This is vital! Zoning will determine how you are able to use the land, as well as the types of buildings that are allowed and where they can be located. Is the property zoned as “residential,” “agricultural” or perhaps “country residential”?

Zoning could affect the lenders available to you and what you qualify for, as well as what you can do with that property. Differences in lending and foreclosure processes, has caused some lenders to be hesitant with financing mortgages in agricultural/country residential zones.

2. PROPERTY BOUNDARIES

Once you have determined how a property is zoned, it is important to look at the land. Requisitioning a survey early in the process will help mark the exact boundaries of your property to avoid future disputes. This is also a good time to get an appraisal done on the land and its value.

3. CONSIDERING THE LAND AND YOUR MORTGAGE

What many borrowers don’t realize is that land has a drastic effect on mortgage qualification and what you can borrow. In fact, most lenders will mortgage: (1) house, (1) outbuilding and up to (10) acres of land. If you have a second building or extra land that is being purchased, you will need to consider additional funding on top of your typical 5% down payment.

4. WATER AND SEWAGE – Things to Know Buying Rural 

When it comes to rural living, many people draw water from private wells and utilize septic tanks for sewage. To ensure everything is safe and in working order, it is a good idea to have an inspection done on the septic tank and water quality as a condition on the purchase offer. Due to the nature of these properties, be advised that inspections may cost more than it would in the city. However, it is important as lenders may request potability and flow tests!

5. COVERAGE MATTERS!

Coverage matters, especially when you are living away from the city. When it comes to rural properties, there are two types of insurance that you should consider:

Home Insurance: When it comes to rural living, this can be more expensive than city homes due to the size and location of the land and distance from fire stations and hydrants.

Title Insurance: This is vital for rural purchases and will protect you from unforeseen incidents with the deed or transfer. It will also alert you to any improper previous use of the property (such as dumping for waste).

If you are thinking about purchasing a home in a rural area, be sure to speak us before you do anything. We can often recommend a realtor who specializes in rural properties and knows the area best. We can also help ensure you understand any differences in the mortgage process and qualifying that come with rural purchases.

When your mortgage application goes through the approval process, they are not only looking at you, but also the property in question. In fact, sometimes when an application is denied it has nothing to do with you, and it’s all about the property.

To improve your chances of success when it comes to financing, there are three main things to consider:

1. The type of property
2. The location of the property
3. The usage of the property

Let’s take a look at some of the specifics for each of these considerations.

It’s All About The Property – Types

There are various types of properties when it comes to home ownership – detached houses, semi-detached, condos, townhouse, duplex, carriage or heritage home. Depending on the type of property you have chosen, there may be specific considerations. it’s all about the property.

CONDOMINIUMS

When it comes to condo properties, the lender (and potentially the insurer) will consider the age of the building. In addition, they will look at maintenance history (or lack thereof), as well as the location for marketability. Some lenders may have stipulations that limit themselves to buildings with a certain number of units, or past a certain age.

If the condo you wish to buy is lacking a depreciation report, has a low contingency fund or large special levies pending, these will be red flags for the lender. Any of these situations will require a more thorough review. These items should also serve as strong considerations for you as it indicates the management (or lack of) for that condo building.

ADDITIONAL UNITS

If you are looking at a property with additional units, it is important to consider that buildings with over four units, are considered a ‘commercial’ property and would be evaluated on that basis.

HERITAGE HOMES

Whether registered or designated, heritage homes require a more detailed review and often come with special considerations for financing.

LEASEHOLD OR CO-OP PROPERTIES

These properties also have specific requirements, particularly when it comes to the maximum loan-to-value which means they will require a larger down payment. These types of properties also typically call for additional documentation, and may have varying interest rates.

If you shift from a standard condo to a lease-hold property, your down payment amount will likely change. If you want to move to a small rural town or a small island, there will be fewer options. In addition, you may have to pay a higher rate as well as provide more documentation on the property.

location considerations

You’ve heard it before – location, location, location! Location matters just as much to the potential homeowner as it does the lender as it’s all about the property. Some things to keep in mind when it comes to location include:

POTENTIAL RESALE VALUE

If the location limits the potential resale value for the building, lenders may not provide financial approval on that property. This is due to the increased risk if the borrower defaults. In that case, the lender may not be able to foreclose the property and get enough funds back due to the low resale. That said, some lenders may allow these properties but they might reduce the loan amount if the building is located outside of a major market area, or they may add a premium to the interest rate.

RURAL CONSIDERATIONS

For properties with water access only, or with no access to municipal utilities (heat, water, electricity, sewage), there will be additional requirements to assess lender risk. These requirements might include: Insurance coverage, water testing, septic tank inspection, seasonal access and condition of the property.

TRANSFER TO ANOTHER PROVINCE

It is also important to note that if you purchase a home in one Province and are transferred or move to a different province, some lenders won’t be able to port the mortgage due to being provincially based.

usage considerations

The use of the property can include things such as personal, investment, recreational, agricultural and also consider previous activities. A few things to keep in mind are:

CONDOMINIUMS

If you are looking at purchasing a condo on a property that has either a commercial component in the building (such as shops on the first floor), or allowable space in the unit for businesses (live/work designation), you may have limited lender options. In some cases, lenders will avoid these types of properties at all costs, while others may require approval from the insurer (i.e. CMHC).

RENOVATION REQUIRED

If the property requires renovations, the extent of the upgrades, as well as the property value will be taken into consideration.

PREVIOUS GROW-OPS

Homes that previously existed as grow-ops, have special lending options. These typically come with higher interest rates and costs due to decreased value.

RENTAL SUITES

For owner-occupied homes that contain rental suites, it is important to consider potential rental income. If the house is purchased for investment, rental income is automatically considered. This can result in a different interest rate than simply an owner-occupied dwelling. In these cases, the rental income can also increase the resale value of the property. However, an appraisal of the property must be conducted and reviewed to ensure the condition. This will also uncover whether any renovations were completed to add value.

SECOND PROPERTIES

Purchasing a second home for recreational use will require a review to determine if it is seasonal or year-round access.

Before you begin your home search, it is best to discuss your future plans with a Dominion Lending Centres Mortgage Professional. This will ensure you receive accurate information to understand the specific requirements your potential property might require. Seeking expert advice early on will also give you ample time to find the right fit! This will also ensure you can submit a full financing review before subject removal on a purchase. It’s All About The Property.

Accessing financial services online has been the norm for years now, with an overwhelming majority of the population using digital channels for most banking transactions. The infrastructure that makes this possible, routinely processes massive amounts of data, constantly evolving to ensure it all remains secure.

To gain a better understanding of how banks protect themselves and their customers, I spoke with Ali Farouk Shaikh, a Unified Communications Solutions Architect at Cisco Systems Inc. who works with major international financial institutions. Ali is a specialist in Software Defined Networking (SDN), with a focus on routing, encryption, and security for large financial services, retail, and manufacturing enterprises.

Where we were – How Banks are Working to Keep Your Data Safe

How was customer and banking data handled by banks in the past?

In the classic model, all software applications and data for a bank would reside on a central data centre. Branches communicated with this centre through physical infrastructure separate from (and unconnected to) what is used at home accessing the internet.

Because of this, security parameters were well-defined. Data and locations were well-defined. It was cumbersome for external threats to access a bank’s network; conversely, it was difficult for users within the network to access the internet.

What prompted a change from that model?

What really started to drive transformative change was a combination of mobile devices and the cloud. The first iPhone pretty much broke the old model. Users could now access data from anywhere, along with demand for additional services to be delivered in a mobile-friendly way.

Simultaneously, modern applications were increasingly based in the cloud, leveraging external services such as Google, Microsoft and Amazon. This changing model meant that bank data was now moving in ways that it hadn’t before, and needed new modes of security and building modern infrastructure. In the industry, this is called the digitization of services—essentially moving from classic networks to networks for digitization.

So, the way customers wanted to access banking changed how banks operated?

Pretty much. The end-user experience has changed. Customers can’t be expected to come to the branch for banking anymore—both customers and bank employees use remote devices to access and provide service (whether this is smartphones or mobile devices on the customer side, or employees with iPads and a VPN on the bank’s side).

As a result, the applications (e.g. mobile banking apps) that provide this changed end-user experience had to move away from the traditional model. Banks were slow to introduce their own apps, but this was always the direction they had to head in. However, they also had to account for privacy and security concerns while meeting strict regulations—more importantly, they had to adapt and meet the requirements of a new digital world.

Now, these applications don’t reside with banks, they reside on the cloud and have to interact with various services that external companies like Google, Amazon, Salesforce, etc. provide. They rely on them for analytics, telemetry, auditing data, marketing data, etc. Because of this, the centers of data were no longer data centres. What I mean is, data now lived everywhere, from mobile devices to cloud services like Amazon Web Services (AWS). This new model required stronger safeguards, security, and encryption, because data now had to be transmitted over the internet.

Where we are – How Banks are Working to Keep Your Data Safe

In light of this new model, how do banks ensure their data and their customers’ data is protected?

As I mentioned before, banks and financial institutions already had privacy, security, and regulatory compliance in mind when modernizing their operations. Now, there are three principles that are fundamental to maintaining a secure banking environment that satisfies both pre-existing and new regulations imposed by the government: confidentiality, integrity, and application security.

Could you elaborate on those principles? What does satisfying the “confidentiality” principle entail?

In this context, “confidentiality” just means making sure no one except you and your bank can see your data. Naturally, when using your banking application, you want to be assured that no one can access your data. Banks go to great lengths to make certain that their systems use the highest encryption standards to protect their data. This means that when using a properly developed banking app, no one will be able to see anything you’re doing on the app. Confidentiality is achieved using the latest encryption—Transport Layer Security (TLS) with Advanced Encryption Standard 256 (AES256).

Side note:if you’re wondering how secure AES256 encryption is—it would reportedly take 77,000,000,000,000,000,000,000,000 years and the dedication of the entirety of earth’s population to crack one encryption key. Not to mention, all of those people would need 10 computers each, capable of processing 1 billion key combinations per second. So, it’s safe to assume it’s pretty secure!

What about the “integrity” principle?

Integrity means ensuring data isn’t tampered with in any shape or form. The desire for this is pretty self-explanatory: you’d naturally want your data to be safeguarded from being tampered with. This is achieved in a number of ways. There are mechanisms to enforce data-integrity checks at the machine-level. This makes sure data isn’t corrupted or altered in any way while in transit or when stored.

The “security” principle seems straightforward enough, but what exactly goes into achieving that?

So, “security” is the aspect that actually protects users from malicious threats from both “state” and “non-state” actors. From a security standpoint, “state” actors are individuals or groups sponsored by foreign governments that carry out malicious attacks. Banks are critical pieces of a country’s infrastructure and are thus natural targets. “Non-state” actors operate in a similar manner, but without the support or direction of a foreign government.

Financial institutions safeguard against these threats by using firewalls to ensure only authorized applications can access data. This is where Intrusion Prevention Systems are applied, both to only grant access to authorized users and to protect against malware. Also, measures taken to prevent Denial of Service (DoS) attacks so that a customer’s access to banking services isn’t interrupted.

Security is taken very seriously, to say the least.

Where we’re headed – How Banks are Working to Keep Your Data Safe

What do you think the future holds for the banking industry? Does that future come with its own set of challenges?

There’s an increasing evolution of machine-learning, the data it provides, as well the services that can be built on it. Not to mention the 5G revolution that will further accelerate the digitization of the world. We’ll begin to see new banking experiences including packages tailored for individuals, as well as new modes of banking. This is all predicated on next-gen technology that has started to enter the marketplace.

The protection of individual data is of paramount importance. Things will have to be secure, untampered with and protected from malicious entities.

Innovation is always a challenge, but the industry will adapt. It always does!