Type A vs Type B cottages, explained

If you have talked to a lender about a cottage, you have probably heard the words Type A and Type B. They sound like insider code, and they are. These labels come from the two mortgage insurers that still cover second homes in Canada, Sagen and Canada Guaranty, and lenders borrow them to sort every cottage file. The label decides your minimum down payment, which lenders will look at the file, and sometimes your rate.

The friendly version of this guide is four-season vs seasonal cottages. This one is the detail page. Here is exactly what each type means, where the lines sit, and the grey areas a buyer should check.

The definitions, side by side

CMHC stopped insuring second homes on May 30, 2014. Since then, only Sagen and Canada Guaranty insure them, and their programs define the categories most lenders use.

Two details matter more than people expect. First, Canada Guaranty's second home product requires the property to be winterized with year-round access, and it lists non-winterized homes with seasonal access as ineligible. So in practice, Sagen is the only insurer with a Type B option. Second, Type B down payments must come from your own resources: savings, an RRSP withdrawal, equity in a home you own, or sale proceeds. A gift is not on that list.

Lenders lean on the same split for uninsured mortgages too. One big bank's published second home program, for example, says a Type B property must meet every Type A rule except two: it does not need a standard heating system, and it does not need year-round access, so an unploughed winter road is fine.

The tests lenders actually apply

Insurer wording is short. In real files, lenders and appraisers look at a handful of things to decide where a cottage lands:

• Heat. A permanent heat source that can keep the place above freezing all winter. A forced air furnace, baseboard heat or a heat pump with backup usually counts. A wood stove as the only heat is a grey area for lenders and a pricing issue for insurers.
• Road. Can a car reach the driveway in February? A municipal road that is ploughed all winter is the cleanest answer. A private road can work if it is maintained year-round. A seasonal road pushes the file toward Type B.
• Foundation. A permanent foundation is the standard. Cottages on piers or blocks are often treated as seasonal, and some lenders decline them.
• Water. Potable water, usually a well or a treated lake intake. Lenders may ask for a passing water test and can hold back funds until treatment is installed.
• Septic. An approved septic system. Holding tanks and outhouses narrow the lender list.
• Marketability. Sagen wants a Type A home to be readily marketable in an area with ongoing resale demand. An appraiser will look for recent comparable sales.

Our well, septic and water test guide and road access guide go deeper on the two items that cause the most trouble.

Down payment by type

Use recent completed sales of comparable properties on the same lake or nearby competing lakes. Match road access, waterfront quality, lot size, condition and permitted use. Provincial reports and asking prices cannot establish what one cottage is worth.

Insured files carry a premium that is generally added to the mortgage. Sagen’s published high-ratio premium at more than 85% and up to 90% loan-to-value is 3.10% for Type A and 4.35% for Type B. A qualifying insured amortization over 25 years adds a 0.20 percentage-point surcharge. Ontario tax on the premium is extra cash at closing.

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Amortization, qualifying and rate

• An eligible first-time buyer or buyer of a newly built home may qualify for a 30-year insured amortization, with a 0.20 percentage-point insurance premium surcharge. Otherwise, model 25 years when putting less than 20% down. With 20% or more down, the lender sets the available amortization.
• Stress test. You qualify at the greater of your contract rate plus 2% or 5.25%, insured or not.
• Ratios. Canada Guaranty caps debt service at 39% GDS and 44% TDS. Your home and your cottage both count.
• Rate. Insured Type A files often price close to a regular mortgage. Uninsured Type B files usually carry a higher rate because fewer lenders compete for them. See cottage mortgage rates.

The grey areas

Wood heat only

A wood stove can heat a cottage beautifully, but many lenders want a permanent, thermostat-controlled source as well. Insurers usually want a WETT inspection, and a wood stove as primary heat can raise the premium or lead some insurers to decline. Adding baseboard heat or a heat pump can move a file from Type B to Type A.

Lake water intake

A lake intake with a working treatment system (UV, filters) is common in cottage country. Expect the lender to want proof the water is potable, which needs more than a single clean bacteria result. The free test does not assess chemical contaminants or guarantee future safety.

Private roads

A private road maintained all winter by an association with a written road agreement can support Type A. A private road nobody plows reads as seasonal.

Piers and older additions

Original cottages on piers with a newer insulated addition on a proper foundation are everywhere. The appraiser's description matters here. Share clear photos of the foundation and additions when discussing financing.

How to check before you offer

1. Ask the listing agent: what heats it, who plows the road, and is it on a well or lake water?
2. Look at last winter. Utility bills from January tell you if someone actually lived there.
3. Make your offer conditional on financing, inspection, and a water test. Our inspection checklist lists what to book.
4. Get a property-specific pre-approval. A pre-approval on a Type A assumption falls apart if the cottage turns out to be Type B.