With home prices out of reach for many first-time buyers, a lot of Alberta parents are using the equity in their own homes to help. Done thoughtfully, it can give your children a start that would have taken them years. Done hastily, it can put your own retirement at risk.
The main ways to help
Gift part of the down payment
You access your equity and give the money to your child. Their lender will usually want a signed gift letter confirming it’s a true gift that doesn’t need to be repaid, and proof the funds are in your child’s account.
Lend the money
You lend the funds and expect repayment. This keeps the money in the family, but a lender may treat a repayable loan as debt when qualifying your child, which can reduce what they can borrow. Get legal advice on documenting a family loan.
Co-sign or guarantee their mortgage
You don’t hand over money, but you become responsible if they can’t pay. Co-signing can affect your own ability to borrow in future, because the debt may count against you.
How you’d access the equity
Usually through a refinance, a line of credit or, in some cases, a second mortgage on your home. See ways to access your equity. If you own your home outright, see getting a mortgage on a paid-off home.
Protect yourself first
- Can you comfortably carry the new payment on your own home, including through retirement?
- How much equity will you keep as a cushion? See how much equity you need.
- Is it fair to your other children? Many families treat help as an early inheritance and write it down.
- What happens if your child separates? Gifts and loans can be treated differently in a family breakup. A lawyer can advise.
Talk as a family, then get advice
Agree on whether it’s a gift or a loan, what happens if circumstances change, and put it in writing. A lawyer, an accountant and a licensed broker can each help with their piece.
This article is general information, not financial, legal or tax advice. Lender requirements, rates and fees change and depend on your situation.