Buy the Way: This couple used a line of credit to buy their dream cottage in P.E.I.

The search
Marcia Ruby and Tom Howard always hoped they’d get back to the Maritimes. Tom’s from Saint John, N.B., and for more than 30 years, the Kitchener, Ont.-based couple would travel east with their two daughters to visit family. “But when the grandparents passed, we had no easy place to go,” says Marcia. “Our hearts were there, but our wallets weren’t.”

So when Tom’s sister sent them the listing for a cottage on P.E.I. in May of 2021, their first instinct was to shrug it off. “But when we looked at the place, we just saw ourselves there,” says Marcia.

What they got
It was a modest, two-bedroom, 621 sq. ft.-bungalow listed for $199,900, across the street from the ocean in Fernwood, just 20 minutes from Summerside on the Northumberland Strait—a spot known for the Seacow Head Lighthouse from the 1985 Anne of Green Gables movie.

They hadn’t been looking to buy anything, but they still had some bank credit available from when they’d downsized from their house in Kitchener to a condo nearby a dozen years ago. “A light went off. We could use the home equity line of credit we’d established when we bought our condo,” says Marcia. (A home equity line of credit, or HELOC, is a revolving line of credit that allows you to borrow against the equity you’ve already accrued in a property.) Their fixed interest rate was decent at 1.8 per cent, so it was beginning to look like the perfect time.

Within a few hours, they’d found a local realtor and put in an offer of just over $200,000. By the next morning, the place was theirs.

The silver lining
The cottage is just what they’d hoped it would be: their daughters—now 34 and 39—host friends in the spring, and the couple spends their summers there. Of course, there’s always a hiccup: the septic tank couldn’t be repaired. The family switched to a holding tank that filled up faster than they realized. To offset pressure on the tank, daughter Amelia immediately got to work building an outdoor shower, which they love even more than the indoor setup.

“It just made sense financially for us to buy this way,” says Marcia. “And we’re pretty happy to have the means for our family to stay rooted in the Maritimes.”

Marcia Ruby and Tom Howard standing on a beach in Prince Edward Island — Photo courtesy of Marcia Ruby

Line of credit know-how

Before you use a home equity line of credit to purchase a cottage, accredited financial counsellor Max Mitchell has tips.

Be careful about interest rates—especially if you’re on a variable mortgage

“In a previous interest-rate environment, a HELOC would be a lot more appealing or much lower risk than it is today, when interest rates are much higher,” says Mitchell, who’s based in Vancouver. Marcia and Tom have a low, fixed interest rate, and are currently paying down their principal as quickly as they can, before their mortgage and HELOC renews in a few years—likely at a higher rate.

Research the appreciation potential of property in the region

“Anytime you’re using debt to purchase an investment, you should make a very educated guess to make sure your return is going to be higher than what you’re risking,” says Mitchell. “That doesn’t mean asking your realtor, who’s incentivized to make a sale.” In other words: do your own research.

Be prepared for future cash-flow crunches

“If something comes around a year from now—such as having to pay for your kid’s wedding—you can’t sell the toilet from the cottage, you can’t sell the porch,” says Mitchell. “You have an incredibly illiquid piece of property.” Also, if renting out the cottage is part of your cost-covering plan, consider if you can still make the monthly payments if a flood, fire, or other event makes the place unrentable: “If everything goes sideways, how will you be impacted?”