OTTAWA — Five things to think about if you're considering gifting money to your child to help buy a home:
Mortgage insurance
If you can help your child get to the 20 per cent threshold for their down payment, it will save them the cost of mortgage default insurance. The premiums are calculated based on the size of down payment and are smaller the closer you are to the 20 per cent threshold. The cost is normally rolled into your mortgage which increases the cost of the loan.
Taxes
If you don't have the cash on hand to make the gift, you might have to sell an investment to make the contribution. Remember that if you sell an asset you could have a tax bill on the capital gain if the investment has gone up and you stand to make a profit when you sell. The taxes will increase your total cost of the gift or eat into what you planned to give your child.
Fairness
You don't want to cause of rift in your family by offering to help one child, but not another. If you have more than one child, what will the others think if you help their sibling with their down payment? Will you be able to help all of your children equally, and do they all need the help? Advisers encourage parents to have open and detailed conversations with their children as part of their estate planning.
Divorce or relationship split
Nobody thinks their relationship with their partner is going to sour when they commit to buying a home, but it happens. If you're gifting a substantial amount of money to a child who is buying a home with their romantic partner, advisers suggest having a legal document outlining what happens to the assets in case of a breakdown of the relationship.
No lump sum
Helping your child with a down payment to buy their first home doesn't have to be a massive lump sum. Parents can help children top up their contributions to their first home savings accounts or tax-free savings accounts well ahead of the time of the actual purchase. Small, steady contributions can add up over time.
This report by The Canadian Press was first published Oct. 31, 2024.
The Canadian Press
