Thinking about buying a cottage? There’s nothing like escaping the city for weekends by the lake… campfires, tubing, wakeboarding, fishing, and family memories just steps from your door. Some of my fondest childhood moments were made at the cottage. But before you start your search, it’s important to understand how mortgage financing works for cottage properties, which often differ from typical homes.

 

Type A vs. Type B Cottages: What’s the Difference?

The first thing you’ll need to understand is the two different classifications for cottage properties as the mortgage qualification criteria can differ for each. 

 

Type A Cottages:

These are fully winterized, four-season properties… essentially homes on the water. To qualify as a Type A, the cottage must have:

  • A permanent heat source (e.g., natural gas, propane, or electric)
  • A minimum of a 3-piece kitchen, bathroom, bedroom, and living area
  • A foundation below the frost line
  • A potable water source (well or lake water with a reverse osmosis filtration system)
  • Year-round road access

 

Type B Cottages:

Seasonal properties that are not useable year-round. These typically:

  • Have no permanent heat source (may use fireplaces or wood stoves)
  • Use lake water (untreated)
  • Sit on floating foundations (e.g., cinder blocks)
  • Lack year-round road access (boat-only or seasonal roads)

Although most mortgage lenders are happy to finance Type A properties, financing options for Type B cottages can be more limited due to their seasonal nature and lower desirability. That said, there are still solid lending solutions available at competitive rates.

 

Down Payment Requirements

When it comes to down payments, Type A cottages follow the same requirements as second homes or primary residences. This means you’ll need at least 5% down on the first $500,000 of the purchase price. For any amount between $500,000 and $1,499,999, the required down payment increases to 10% on that portion only. 

To put that into perspective, if you’re purchasing a Type A cottage for $800,000, you’d need 5% of the first $500,000, which amounts to $25,000. Then you’ll need 10% of the remaining $300,000, which is $30,000. That totals a minimum down payment of $55,000.

For Type B cottages, the down payment requirements are a bit stricter. A minimum of 10% is needed from the very first dollar of the purchase price, and this applies up to a maximum purchase amount of $1,499,000.

As with any home purchase where less than 20% is put down, mortgage default insurance such as CMHC will be required. I cover this in more detail in my blog on high-ratio mortgages.

Any purchase at $1,500,000 or greater will require a minimum down payment of 20%. 

 

The Sliding Scale Trap

One detail that often catches buyers off guard is the impact of a lender’s sliding scale policy on the down payment requirement. Here’s how it works: even if you’re planning to put 20% down, that percentage might only apply up to a certain threshold of the purchase price.

Take, for example, a $1 million cottage purchase. While you might assume 20% down means a $200,000 deposit, many lenders will only apply that 20% to the first $750,000. The remaining $250,000 might require a higher down payment… often 50%. In this case, you’d need $150,000 on the first $750,000, and another $125,000 on the rest, bringing your total minimum down payment to $275,000.

These sliding scale thresholds aren’t universal. They vary by lender and often depend on the property’s location. In some areas, the scale could start as low as $500,000. 

For more information, check out my blog on What is a Sliding Scale and How it Affects Your Approval. 

 

What if You Don’t Have Funds for the Down Payment? 

If coming up with the down payment is a challenge, there are still options if you own your primary residence. One of the most common strategies is refinancing your current mortgage to access the equity in your home. You can refinance up to 80% of your home’s appraised value, as long as the numbers make sense and the equity is there.

Keep in mind that refinancing mid-term typically comes with a penalty for breaking your existing mortgage contract. However, depending on your lender, you may qualify for a blended rate mortgage, which lets you access funds without paying a penalty. While that might sound appealing, it’s not always the most cost-effective route. In many cases, it may be cheaper in the long run to pay the penalty and switch to a different lender with a lower rate. 

Another option is tapping into a home equity line of credit (HELOC), if you already have one in place. HELOCs provide flexible access to your home’s equity and can be used toward the cottage down payment. If you don’t currently have a HELOC, you’d need to refinance your mortgage to set one up… something that’s generally available through most major banks, credit unions, and select monoline lenders.

 

Interest Rates on Cottage Mortgages

When it comes to interest rates on cottage mortgages, Type A properties typically qualify for the lowest market rates with no added premium. These are seen by lenders as stable, year-round homes, so they fall in line with standard residential mortgage pricing.

Type B cottages, on the other hand, may come with slightly higher rates due to their seasonal nature and limited lender availability. That said, this isn’t always the case. Some of the lenders offering the most competitive rates will still finance Type B properties, meaning you could still access the best rates on the market, depending on the specific details of the cottage.

At PMT, securing the lowest possible rate is a priority with every client with have the privilege of serving. We’re constantly tracking the market and comparing lender options to make sure our clients lock in the most competitive rates available… right through to the closing day. It’s part of the high-level service experience we’re proud to deliver.

 

Get Pre-Approved—It’s Crucial

Getting pre-approved isn’t just a smart move… it’s essential. One of the most common (and costly) mistakes buyers make is assuming they’ll qualify for a mortgage without actually checking. Even if you’re confident you can handle the payments, the lender may have a different opinion based on how they assess your income, debt, and existing obligations.

It’s important to remember that when applying for a cottage mortgage, you’ll need to qualify for this new loan in addition to the mortgage on your primary residence. Sometimes we see applications that leave out other properties owned—whether it’s a rental, vacation home, or otherwise. Some borrowers think, “Why include it? I’m not borrowing against that property.” 

But lenders look at the full financial picture. Any existing property, regardless of whether it’s tied to the new mortgage, still brings carrying costs that impact your debt-to-income ratios.

Another common oversight? Assuming all income is counted equally. If you’re self-employed, or have variable or seasonal income, qualifying can become more complex. That’s where working with an experienced mortgage professional comes in. We’ll make sure everything is assessed properly upfront, so there are no surprises or delays down the road.

 

Final Thoughts

Buying any property is exciting… but buying a cottage is something truly special. It’s not just a home; it’s a place where family memories are made, where weekends slow down, and where life feels a little simpler. Some of my best childhood memories were made up at the cottage, and I know how meaningful that experience can be.

When it comes to financing, securing a mortgage on a cottage is, in many ways, similar to financing a primary residence or second home. But there are a few important differences to be aware of, especially around property classification, down payments, and lender criteria.

The key is preparation. Make sure you’re pre-approved before you start shopping, and when you find a property you’re interested in, send us the MLS listing right away. We’ll review it to flag any potential issues before you commit, so there are no surprises. With the right guidance, getting your dream cottage can be just as smooth as your morning coffee on the dock.