Many Albertans buy a rental property, a cabin or a home for a family member using the equity in the home they already own. It can be a powerful way to grow wealth, but it also means two properties carrying debt, so the plan has to be solid.

How it works

You access equity from your current home, through a refinance, a line of credit or a second mortgage, and use it as the down payment on the new property. The new property then gets its own mortgage for the rest. See ways to access your equity.

What the lender for the new property will look at

  • Your total debts, including the newly borrowed equity and both mortgages
  • Your income, and, for a rental, a portion of the expected rent
  • The down payment source. Borrowed equity is generally acceptable for a down payment, but the lender will count its payments in your debts.
  • The property type and use. Rentals, cabins and second homes each have different down payment rules.

Down payments differ by use

Rules vary by lender and by how the property will be used, but in general an investment property needs a larger down payment than a home you’ll live in. Recreational properties have their own requirements. A broker can confirm what applies to your plans.

Run the numbers honestly

For a rental, include everything:

  • The payment on the equity you borrowed
  • The new mortgage payment
  • Property taxes, insurance and condo fees
  • Repairs, maintenance and vacancy
  • Property management, if you won’t manage it yourself

If the rent doesn’t cover the property’s costs, you’ll be topping it up from your own income every month.

The risks

  • Two properties exposed to a market dip. See how Alberta home prices affect your equity.
  • Rate changes on both mortgages and any line of credit
  • Tenant problems or vacancies
  • Less flexibility if your income drops

Read the risks of borrowing against your home before committing.

Taxes

The tax treatment of interest and rental income can be complex. Speak with an accountant before you buy.

This article is general information, not financial, legal or tax advice. Lender requirements, rates and fees change and depend on your situation.