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How will you use this property?
You may be looking into a vacation home, or perhaps a rental property that you’ll use occasionally. Start by considering all the things that will go into this decision. Is this property easy to rent or share? More importantly, is this property in a community that permits short-term rentals? You may want to ask around and see how the local homeowners feel about rental guests.
Perhaps, the bigger question is around what you want out of your retirement and if this property will give you that. If you have children, they may play a big role in your decision. If your children are older and starting to grow their own families, you may want to ensure that there’s enough room for them to visit, or even use the space independently.
How does this investment measure up financially?
Besides the price of the property itself, consider things like renovations and upgrades. Have you investigated all the other expenses to run this property? How much are the land taxes, property fees, insurance, cleaning, outdoor maintenance? Moreover, are you eligible for any tax deductions with a second property? It’s important to budget for these things and ensure that they won’t have a negative impact and affect your overall financial goals.
There may be other financial aspects that you may not have considered, such as landlord-tenant laws, taxable rental income, property management costs, fluctuating markets, resale, and the legal duties and expectations of a landlord.
You will need to consider your options for financing. To help you access equity to buy a second property, consider the Scotia Total Equity Plan (STEP).1
What is the Scotia Total Equity Plan (STEP) and how can it help me?
If you need money to fund a down payment on a second property and you don’t want to cash out investments, with STEP you may initially borrow up to 80% of your home equity.2 A STEP allows you to finance a purchase using the equity of your primary residence. If you earn rental income from this property, you can deduct expenses such as the interest paid on the borrowed funds. For physicians who pay the highest marginal tax rate, the higher loan to value ratio can help offset the rental income you earn and reduce your taxes payable.
Scotia Total Equity® Plan (STEP)
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with an optional subtitleWith the flexibility of a STEP, you’re able to mix and match different Scotiabank credit products based on your needs to create a plan that works for you (like mortgages and lines of credit). You can use your home equity whenever and however you need it. We understand that as a physician you have unique financial needs. Scotiabank Home Financing Advisors can provide expert advice and help you choose the right mortgage solution customized to meet your needs. Together with MD Financial Management, we can develop a holistic financial plan to build your wealth.
Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as financial, tax or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third-party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific financial, investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
MD Financial Management (MD Financial) provides financial products and services, the MD Family of Funds and investment counselling services through the MD Group of Companies. For a detailed list of the companies, visit md.ca. All banking and credit products and services available through the Scotiabank Healthcare+ Physician Banking Program are offered by The Bank of Nova Scotia (Scotiabank). Credit and lending products are subject to credit approval by Scotiabank.
® Registered trademark of The Bank of Nova Scotia, used under licence.
1 Subject to meeting Scotiabank’s standard credit criteria, residential mortgage standards and maximum permitted loan amounts. A new application may be required to add or change products under the STEP in some circumstances and, if you request a change to the credit limits of your products, you may be asked to provide updated information and/or submit a new application. In some cases, a new mortgage registration may be required. Not all mortgage solutions may be eligible to be included as part of the STEP. Additional restrictions and conditions may apply.
2 ALL STEPs opened or refinanced on or after September 15, 2012 that have a borrowing limit ("STEP Global Limit”) greater than 65% of the home’s value at time of approval will experience changes. Beginning November 2023, your STEP Global Limit will gradually reduce to 65% over the next 25 years. This will take effective through equal monthly reductions to your STEP Global Limit.
