Retiring to the cottage: money, mortgage and reality

For a lot of the families considering a cottage, the cottage is the retirement plan: coffee on the dock on a Tuesday in October. Moving there full time changes your money, your taxes and your mortgage options, so it helps to plan a few years ahead.

Three common paths

1. Sell the city house and move to the cottage

The simplest money story. The sale often frees up a big chunk of equity that can pay off the cottage, fund upgrades like winterizing, and top up savings. The cottage then becomes your principal residence going forward.

2. Keep both, at least for a while

Some couples test full-time cottage life for a year or two before selling. That keeps options open but means carrying two properties on retirement income. Run it through the affordability calculator honestly.

3. Downsize in town and keep the cottage for summers

A smaller place near family and health care, plus the cottage from May to October. This works well for people who love the lake but not the February road.

Check that the cottage works in January

This is the first question we ask. A summer cottage and a retirement home are different things. Check for:

• A permanent heat source and insulation that handles January.
• A municipally maintained or reliably ploughed road.
• Water lines that do not freeze, and a well and septic system sized for full-time use.
• Reliable internet and cell service, which matter more than ever for telehealth and staying in touch.
• A realistic drive to a hospital, pharmacy and groceries in winter conditions.

If any of these are missing, budget for the upgrade before you move. Our guide to four-season vs seasonal cottages and cottage road access go deeper. Lenders also care: a winterized cottage with year-round road access is generally easier to finance than a seasonal one.

Getting a mortgage in retirement

There is no age limit on getting a mortgage in Canada, but you still need to qualify. Lenders commonly look at documented income such as workplace pensions, CPP, OAS and regular RRIF withdrawals. Some lenders will consider investment assets in other ways, but those policies vary and are not standard, so ask before you count on it.

You also still need to pass the stress test. For both insured and uninsured mortgages, you qualify at the greater of your contract rate plus 2% or 5.25%.

Two practical tips:

• Arrange financing before you retire if you can. Employment income is often easier to document than a brand-new pension.
• Mind your taxes. RRIF withdrawals are fully taxable and can push you into the OAS clawback range. Talk to your accountant before you pull a large lump sum for a down payment.

Amortization limits by age are a lender policy, not a regulation, so terms differ from one lender to the next. That is part of why working with a broker helps here.

Talk to Jeff and Emily

Planning a move to the lake in the next few years? Book a call and we will map the mortgage side with you, before and after retirement.

Or call or text 416-628-9682

Book a call

Principal residence and taxes

When the cottage becomes your home, the tax picture changes. A family unit can designate only one property as its principal residence for each year. If you owned both the city home and the cottage for many years, you and your accountant will decide which property to designate for which years when you sell. Our principal residence guide explains the basics, and passing the cottage to your kids covers what happens later.

Every sale of a principal residence must be reported on your tax return. This is general information, not tax advice, so talk to an accountant before you sell either property.

Reverse mortgages and equity

Some retirees look at a reverse mortgage or a home equity line of credit to fund renovations or cash flow. These can work, but lenders are pickier about rural and recreational properties, and costs differ a lot. If you are thinking about it, ask us to compare options side by side. Our HELOC guide explains the current limits.

The full-time cost of living at the lake

Full-time use raises heat, hydro, ploughing and maintenance costs compared with weekend use. On the other hand, you drop the second set of property taxes and insurance once the city house is sold. Rebuild your budget with the cost of owning calculator using year-round numbers.

Our take

Retiring to the cottage works best when it is a plan, not a leap. Spend a full winter there first, check access to care, and sort out the mortgage while your income is easiest to prove. We would be glad to help at get started.