By Craig Wong
That’s why a growing number of parents are looking to help by making a cash donation.
Natalie Gill, senior financial planner at Royal Bank, says she’s always seen parents and grandparents help in different ways.
“But it’s just that I feel like now people want to help more and they’re more aware of it,” said Gill, who has 25 years of experience as a financial planner.
Home prices soared in 2021 when mortgage rates were low, and while prices fell when interest rates rose, they remain significantly higher than they were before the pandemic.
According to the Canadian Real Estate Association, the average price of a home sold in September was $669,630, down from its peak of $815,723 in February 2022, but still up from 517,731 $ in December 2019.
A report released earlier this year by CIBC found that homebuyers relying on their parents’ money to purchase a home is becoming the norm in Canada.
CIBC’s June report suggested 31 per cent of first-time home buyers received help from family members, up from 20 per cent in 2015, while the average donation was $115,000, up 73 % compared to 2019 levels.
Giving money helps homebuyers in many ways.
A donation can help reduce the amount of a mortgage loan needed, thereby reducing interest costs. It could also reduce or even eliminate required mortgage insurance, which could also save borrowers money.
Mortgage loan insurance is required if you are purchasing a home in Canada with less than 20% down. Premiums are calculated based on the amount of the down payment and are lower as we approach the 20% threshold.
Joe Reid, vice president of wealth management and impact investing at Vancity, says it’s important for families to have detailed conversations about money.
“Even if mom and dad help with the down payment, the kids still have to be approved,” he said.
Reid says you don’t want to find yourself in a situation where the buyer has the down payment, but ends up with a house they ultimately can’t afford.
He says it’s important to work with a financial advisor to make sure any gift works for both parents and children and is affordable for everyone involved.
Giving money can involve much more than giving money. Lenders may request a gift letter confirming that the money is not a loan to be repaid. If the donor must sell investments to make their contribution, there may be tax consequences if those assets appreciate and realize a capital gain when sold.
Gill also recommends, if you are giving a large sum to purchase a property, getting a legal agreement to protect those assets for your child in the event of a marriage or relationship breakdown.
Fairness and family harmony are also important considerations if the gifters have more than one child and should be involved in estate planning.
“If you give a gift to one, what are the intentions for the others? » said Gil.
Reid says gifts should also take into account the different circumstances between the children, especially if one makes significantly more money than the other.
“If you support one more child during your lifetime, there may be an opportunity to equalize that amount upon your death,” he said.
Gill emphasized that parents don’t need to be able to write a $100,000 check all at once to help.
Parents can help their children contribute to their First Home Savings Account (FHSA) or Tax-Free Savings Account (TFSA) to help them grow their savings toward purchasing a first home.
“So you can do it slowly and you and the child can contribute,” she said.
“As they say with everything, you start with a small amount and contribute regularly. »
This report by The Canadian Press was first published October 31, 2024.
Visited 29 times, 29 visit(s) today
CIBC Consumer Financing Advice Down Payment Assistance Down Payments Down Payment Donations Joe Reid Natalie Gill Personal Finance The Canadian Press
Last modification: October 31, 2024