Can our kids’ down payment go on our mortgage?


Dear David: We are empty nesters. We own a big house and have about a million dollars’ worth of equity in it. Our two children are in their mid-twenties and each is saving for a condo. We would like to help them out. We have a mortgage and can afford some extra payments but would have to loan them a considerable amount for their mortgage payments to be affordable. Can we purchase a condo and put the down payment for the mortgage on our existing home? – THE BANK OF MOM AND DAD

DEAR MOM AND DAD: I’ve been asked this question several times and always recommend that you help your kids get a foothold in the real estate market as soon as possible.

Property values are rising faster than most new buyers can save, which leaves many first timers needing a boost. According to a recent study by the National Bank of Canada (NBC), Canadian housing affordability deteriorated by the widest margin in 27 years during the second quarter of 2021. The goal of home ownership is growing more elusive, especially in a robust market like ours where the goalposts keep changing.

Prices are skyrocketing

Back in 1970, the average price of a home in Kitchener was $28 thousand. In 1980, it was $55 thousand. It was $158 thousand in 2000, and today, it’s hovering around the crazy $750 thousand mark. Local demand for homes remains high. While we have some seasonal fluctuation, I don’t foresee our real estate bubble bursting. Attempts to wait out the market could end up making things worse for some buyers, as home appreciation continues to outpace inflation.

The good news? Buying property in a rising market is one of the best long-term investments you can make. It’s like investing in RRSPs but is tax free, and at the end of the day, we all need to live somewhere.

Here’s how to help

There are a few ways you can help your kids get into the real estate market sooner rather than later. Assuming that all of you qualify with the bank, you may choose to borrow against your home and gift them a down payment that’s large enough for them to be approved for a mortgage on their own. From the bank’s perspective, a gift won’t be factored into your child’s debt load or affect their affordability ratios, since there’s no expectation of repayment. Alternately, you could provide a smaller down payment and co-sign on the mortgage if their income is not sufficient.

Today’s Pro Tip:

Surround yourself with professionals. A friend gave me this advice decades ago, and it’s never steered me wrong. Ask your financial advisor and mortgage specialist to recommend solutions that will work well for you over the short and long terms. Talk to your lawyer about whether it makes sense for you to go on title. And don’t forget your Realtor, who will undoubtedly have some great options to get your kids started in the housing market. #AskDavid #Advice

David is a top-selling Broker in Kitchener-Waterloo Region. He works personally with you when selling or buying a home. Moving? Get it right. Ask David today! Call or text 519-577-1212.