Kickstarting kids

Parents should seek expert advice before making big decisions about helping kids purchase a home

When Laura Parsons and her husband decided to help their adult children with home ownership, they carefully considered the best method.

For their son, the Parsons gifted money, as an early inheritance, over a two year period. He then deposited the funds into an RRSP, which allowed him to generate immediate tax savings, and later, make a tax-free down payment on a home, utilizing the Canada’s Home Buyers’ Plan.

It is strategy not all parents are aware of, but as BMO Financial Groups’ vice president Mortgage Specialists, Parsons knows the benefits and has even led seminars on the topic.

Parsons says that parents wanting to help a child buy a home should first seek advice from experts, consider the consequences, and find a plan that works best for all parties involved.

She says a BMO survey a few years ago found that 42 per cent of first-time home buyers were counting on financial assistance from their parents for a down payment. While many Baby Boomers have the financial means to help with a down payment, she cites other strategies, such as co-signing a mortgage, if the child has the money “but not the credit.”

Nicole Wells, vice president of Home Equity Financing with RBC, says while high real estate prices have made buying a home difficult for young people, they have benefitted their parents.

The increase in property values that parents are experiencing as they start to get out of the market makes this a common practice – to leverage some of the equity that they have earned in their property and give their children what’s called a living legacy.

“The increase in property values that parents are experiencing as they start to get out of the market makes this a common practice – to leverage some of the equity that they have earned in their property and give their children what’s called a living legacy,” said Wells.

Wells also says most people can save the minimum five per cent for a down payment, but with their parents help can increase that down payment to avoid mortgage insurance costs and reduce the cost of home ownership.

According to Wells, there are other ways parents are helping, such as allowing a child to move back home to reduce costs and save down payment faster. But if parents want to make a direct financial contribution, they need to “understand what impact that money will have on their retirement and long term goals.”

“So it’s really important they sit down and talk to a financial adviser about the possibility of giving a living legacy to their kids, and to see what else they can do,” said Wells. “They can talk about whether they want to be a guarantor, or invest in part of the property and get some payments.”

Parsons says there are many ideas and programs out there, so it’s wise to have the advice of mortgage specialists, financial advisers, accountants or lawyers, before going forward.

“Go in as a family, so you all can ask questions and so you can all uncover what the options are. Then you can have a great discussion on what route you want to take,”
said Parsons.

Wells notes both parties need to agree to the roles each will play, such as whether the parents would have a say in the type of home
purchase, “so you’re both clear on the expectations.”

“You don’t want to ruin a relationship.”


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Price is the deciding factor for many young adults who are purchasing their first home.

This isn’t necessarily a bad thing; but you actually risk taking a financial hit when you fixate solely on what you think you can afford, said BMO mortgage specialist Laura Parsons.

“Millennials tend to migrate to affordability instead of understanding their options,” said Parsons, who has more than 30 years of mortgage experience.


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Fixed versus variable; closed versus open; payment frequency: When it comes to picking a mortgage, do you know what’s best for you?

BMO mortgage specialist Laura Parsons offers her insights.

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A variable rate will fluctuate with prime – meaning you could end up paying more interest if prime changes. A fixed rate will not fluctuate.


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BMO study says generation is still willing to wait

Canadian housing prices continue to rise, but prospective millennial first-time homebuyers are in no rush to enter the market.

According to a report released by the Bank of Montreal, while 60 per cent of millennials surveyed are tired of paying rent, 70 per cent would rather delay homeownership until they can get what they really want in a home.

This comes at a time when millennials are expecting to pay more for their first homes than previous years, exceeding $350,000 on average nationally. That figure rises to more than $465,000 and $525,000 for Toronto and Vancouver respectively.


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Bank of Canada’s overnight lending rate exposes disparities in Canada’s housing markets

The Bank of Canada’s decision to leave its overnight lending rate unchanged at 0.5 per cent is expected to have vastly different impacts on markets across the country, say experts.

The bank’s decision to stand pat on the rate it established last July instead of downgrading it by 0.25 per cent will do little to help revive what’s expected to be a sluggish economy in 2016, said BMO Financial Group chief economist Douglas Porter in an interview with CREB®Now.

“It’s certainly not going to be enough to turn around Calgary,” he said. “Is it enough to revive the Canadian economy? No, a quarter point is not going to do it. But there’s only so much a central bank can do without risking other things, and I think we’ve seen those risks in the past year.”


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