A parent’s first instinct when their child is in need is to help. Now, it’s come time for your child to move out, but they are financially having difficulties. It is becoming a quickly growing issue in Canada that many millennials are struggling to buy their own house without financial assistance. According to a study done by the Ontario Securities Commission, only 33% of millennials are homeowners, and over 50% of millennials have saving for a home as their top priority.
With that, more and more people have been opting to aid their family members or friends by providing them with either a financial loan or gift. Last year in Canada, 37% of homebuyers received financial help from someone in order to buy a house – a rather large 6% jump within the last 4 years. It’s important that when you consider helping someone purchase a house, you review all the risks first. Can you afford to help your child buy a house? Will you be jeopardizing your own finances in any way if you decide to help? Can your child keep up their end of the bargain be able to pay you back if you choose to loan them money?
Once you carefully evaluate the possibilities, it is best to review with a lawyer or financial advisor. You can then take a look at the options available when helping someone financially with purchasing a house.
You can gift money
When you gift someone money, there is no intention of having any of that money paid back to you. It’s simply just a gift. Well, maybe not completely simple. If you decide to gift your child money, you’ll usually need to sign a declaration stating that the money you plan on giving is not to be returned or paid back. One of the great perks of gifting money in Canada is that the money is not taxed.
The other way of gifting money is also viewing it as a “living inheritance”. Instead of passing down money as part of your will, you can gift it to your child. That way, they can use that money as part of their down payment on their home and use it while they are young. It is very important to look into legal repercussions or financial risks when considering this option though.
You can loan money
If gifting money isn’t an option, you can loan your child the money. What this means for you is that the money you lend will be returned to you and as an added bonus, the interest rate on the money loaned from you will more than likely be less than what your child’s mortgage rate would be. You get your money back and your child pays less interest so it’s a win-win situation.
It’s very critical that you are clear with your child about your financial expectations though. How much of an interest rate with there be on the loan? How much will you be loaning? How and when will your child repay you? You’re not a bank but remember this is your money and your financial future at stake here. You love your child, but don’t jeopardize your money if you aren’t 100% confident there will be no issues. With a loan as well, it could impact the down payment on the house. In some cases, a loan is not considered a down payment from your child. This could possibly mean paying a surcharge from the Canada Mortgage and Housing Corporation. There is a lot of trust involved when it comes to loaning or gifting your child money for their first home and that is the most important thing to remember. You love your child and want the best for them, but you also want the best for yourself and you don’t need to endanger one to make the other happen. That’s why it’s important to get the right legal advice on a decision this big -and at Ares Law, we can do just that for you. With our expertise and professional advice, we can help you navigate all your options and help you land on a decision that won’t compromise anyone’s financial future. We specialize in wills and estate planning and want the best for you and your family’s future. You can reach us at our Bracebridge office at (705) 645–8743 and let us start helping you today!
