Remember the good old days? You began your early independent life with a nice starter home in the suburbs with a small lawn to cut in the summer and a driveway to shovel in the winter. A few years later you bought a bigger home, moving up in life and work….Not anymore.
Today the average price of a home in Vancouver is well over a million dollars, and with the new mortgage rules, first time homebuyers are hard pressed to ever own a home, unless they get some sort of relief from family or win the lottery.
You may be a parent of a millennial with the heart (and wallet) to help your child get into the property ladder. Here are ways to do it:
1. Make a lump sum payment as a gift.
Pros:
No tax implications if you are gifting to your child using after tax dollars.
Simple and straightforward to do.
Cons:
The gift comes with no conditions attached.
You cannot demand retroactive payments or conditions.
You may lose your gift if creditors have a claim on your child’s assets or your child’s marriage breaks up.
2. Become a co-signer or guarantor to a mortgage. This is useful if your child has a poor credit history or doesn’t have enough to cover the monthly payments.
Pros:
You don’t have to put out your own money.
You give your child the opportunity to own a mortgage with your help, which will help his/her credit rating in the long run.
Cons:
If your child cannot make the payments, you are on the hook for the payments.
The lender can take action against both you and your child.
If you are the guarantor, the lender will first go after your child, and then after you. This will affect your credit worthiness, which is not a
good thing if you have painstakingly maintained an excellent record over the years.
3. Consider giving your child a secured loan.
Pros:
The loan can be documented and secured to give you the parent, the legal right to enforce payback conditions.
If the conditions are not met, you can take the matter before the courts, and eventually take control of the property.
If your child’s marriage breaks up, a secure loan will ensure that your contribution is not lost.
If you have prior claim on the property through the secured loan, other creditors may not be able to make a claim on the property.
Cons:
Drawing up the loan documents that will stand up in a court of law will require the use of a lawyer, which represents an expense.
If the loan is drawn up informally over the dining table, it may not stand up in court.
Not many parents may actually take their children to court if they default on the loan.
4. Set up a trust that stipulates that the child can only use the property in accordance with the terms set out in the trust.
Pros:
The child can enjoy the home without the need for a mortgage.
The home is secured from a child’s creditors and the fallout of a broken marriage.
Cons:
As a parent, you still have to fork out for your child’s accommodation
Your child will not build up a credit history.
The legal fees for setting up the trust can be expensive.
Vancouver’s real estate market has been appreciating over the past decade and is still an excellent investment. We are a well-known brand in the luxury real-estate market. Head to
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