In varying degrees, parents across Canada are helping kids enter the real estate market. In British Columbia and Ontario, the provinces with the hottest housing markets, 42% and 35% of these home buyers, respectively, received financial help from family, according to research from Ratehub*. The Atlantic Provinces had the lowest rate of assistance at 18 per cent.
Much of the money parents contribute is going toward the down payment, but how much people put down varies from province to province. In British Columbia and Québec, 45 per cent of home buyers put down at least 20 per cent. In Ontario it’s 38 per cent while only 20 per cent of people in Manitoba and Saskatchewan meet the 20 per cent marker*. Those who don’t put down at least 20 per cent are required to pay default insurance premiums. The amount you pay for this insurance declines as your down payment increases.
Parents helping kids buy a house can make sense, but parents do need to consider the financial implications of helping, especially when it comes to three main financial assistance options.
Loan - This can be a good way to top up a down payment after the minimum is met or it could be used to cover closing costs. But take note: parents will have to declare interest from the loan on their tax return.
Co-sign - Many parents co-sign for a house, and while that can get children their own abode it comes with risks, too. If the kids default on their mortgage payments, the co-signees would be on the hook to cover the costs.
Gift - One of the easiest ways to help a child is to give them a financial gift. There’s no tax on cash gifts, but if the gift is the outright purchase of a house for the child, then the parents may have to pay capital gains on the eventual sale of the house.
If you’re a parent wanting to help your kids buy their first home, make sure you do that without putting your own financial life in jeopardy by seeking advice from your professional advisor.
*https://www.ratehub.ca/blog/canadians-needed-financial-help-to-buy-a-home/
This column, written and published by Investors Group Financial Services Inc. and Investors Group Securities Inc. presents general information only and is not a solicitation to buy or sell any investments. Contact your own adviser for specific advice about your circumstances.
