Canadian Mortgage Options for Buying Foreign Property

Can you feel the warm breeze?  Smell the rich floral earth? 

Last updated November 27, 2020

Sarah and Jackson couldn't stand the long, dark, and cold Canadian winters.  In 2019 they went to Costa Rica for a month long winter vacation and fell in love with the place. Before they knew it, they were in the back of a SUV driven by Michael Mills, owner/broker of Re/Max Costa Rica looking at property.  Inevitably, the topic of purchase financing came up.

The General Thought on Purchasing a Vacation Home in Costa Rica, Panama, Mexico or Somewhere Else Warm

Changing lifestyles affect the decisions Canadians make on how and where they choose to live. Second homes are very popular for winter and vacation getaways. Good news; it is possible to finance a second property with owner-occupied (best) interest rates and rules.

A Primer on Getting a Mortgage for a Foreign Property

Understand that Canadian lenders will only provide you a mortgage if they can register their mortgage against a Canadian land title or deed in a Canadian (not foreign) land title system, using Canadian lawyers in order to enforce the contract in a Canadian court, if ever required.  

This rule holds true for lenders in other countries as well - they will only lend on properties within their legal jurisdiction.

So a Canadian lender mortgage on a foreign property is a non-starter.

Here are some options:

  • Option 1 - there are a number of Canadian banks operating in foreign countries, and a borrower typically must deal directly with the foreign bank office, not a Canadian branch.
    • For the USA, where language and rules are quite similar to Canada, this can be fairly straightforward.
    • In other countries, getting a mortgage locally can be time consuming, exhausting, and expensive. Typically Scotia Bank and HSBC operate in many countries as well as other local options. You would need to visit a bank in your target country.
  • Option 2 - for many, refinancing your principle Canadian residence and using the equity to purchase your foreign home is by far the simplest finance solution.
    • Up to 80% of the value of your home can be refinanced, for example: if you have a home worth $500,000 and only hold a mortgage of $250,000 you can refinance to $400,000, payoff the $250,000 mortgage and use the other $150,000 to buy a vacation home.
    • The interest rate will be lower because you remortgaged your permanent residence and have no mortgage owing on the vacation home.
    • Makes it simpler and faster to buy in the foreign location.
    • There are no restrictions on the use of the vacation home, such as if used for a rental
  • Option 3 - purchase a Canadian rental property instead. 
    • Think of the mortgage payment as what you'd otherwise be paying on the foreign home.
    • Use the rental income to fund your travel aspirations, whether that is an annual trip to your favourite warm spot, or mix it up from time to time - how about a sailboat charter in the Caribbean next year? 
    • No fuss with foreign ownership, leave the keys at the front desk!
    • You also have many financing options on Canadian vacation properties as well.

Best Finance Option

Mike, the Realtor, has tried and tried to get local financing for his predominately Canadian, US, and UK customer base, and it's a tough slug.  His recommendation?  Option 2.  That's what Sarah and Jackson did. Having cash also gave them a much better negotiating position.

If you'd like to explore your finance options, please feel free to contact us.

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