Are you a parent wondering if you should leverage the equity in your home to help your adult children break into Canada’s expensive housing market? With rising prices putting homeownership increasingly out of reach for many first-time buyers, more families are exploring creative solutions.

In this blog post, we’ll discuss the key options to tap home equity for your kids’ home purchase, assess the risks and rewards, and share tips to reduce exposure.

An Overview of Home Equity Financing Options

First, let’s quickly recap what home equity is and how you can access it. Home equity is the current market value of your home minus any outstanding mortgage debt still owed on it. So if your home is worth $800K and you owe $400K to the bank, you have $400K of equity built up.

There are a few ways to leverage home equity for other uses:

Home equity lines of credit (HELOCs)

These function like a credit card using your home as collateral. HELOC rates are often lower than other financing options.

Home equity loans

These give you a lump sum loan upfront based on your equity. The interest rate is usually fixed.


You can cash out equity by replacing your mortgage with a new, higher-value one.

Reverse mortgages

These allow seniors to access equity without selling. The loan + interest must be repaid eventually.

Besides taking out loans, you can also use your equity indirectly by:

  • Co-signing a mortgage for your child
  • Gifting funds for a down payment

Take Stock of Your Finances Before Proceeding

Before moving ahead with any home equity leverage for your kids’ home purchase, be sure you’ve thoroughly assessed your financial picture first. Key questions to ask yourself include:

Are your retirement savings on track?

Ensure your nest egg is sufficiently funded before putting your home at risk or tying up cash in a gift. Review your target savings and projected monthly pension income.

Do you have other assets to liquidate instead?

If your RESPs, TFSAs, or non-registered investments have healthy balances, it may make more sense to draw from those before turning to home equity financing.

Can you afford the ongoing loan payments?

Be realistic about your income 10 or 20 years down the road. Also, plan for rising interest rates over the lifetime of a home equity loan.

Have you modelled worst-case scenarios?

Run the numbers to see the impact if home values decline and your adult kids can’t repay you as planned. Make sure you aren’t jeopardizing your own retirement.

Could co-signing be an alternative?

If you have good credit but limited savings, co-signing may involve less risk than a cash gift you can’t afford or a HELOC you can’t repay.

Helping Family Members With the Down Payment

Coming up with enough cash to cover the down payment is one of the biggest barriers first-time home buyers face. The amount required depends on the type of mortgage chosen:

  • Conventional mortgage – At least 20% down payment required
  • High-ratio mortgage – As little as 5% down with mortgage default insurance

Gifting part of the down payment is a common way parents assist their kids. Some key tips on down payment gifts:

  • The annual tax-free gifting limit is $17,000 per recipient for 2024. For a couple, that means $34K to a child.
  • On a $500K home, $34K would cover 6.8% of the purchase price – helpful but likely not the full 20% down.
  • Ensure you document the gift properly with a letter confirming you do not expect repayment. This will prevent issues when your child eventually sells.

Besides gifts for the down payment, family members can help with closing costs like legal fees, taxes, and moving expenses. First-time home buyer programs sometimes even offer tax rebates on these costs.

Should You Co-Sign Your Kids’ Mortgage?

Adding your name alongside your child’s on the mortgage application as a co-signer can shore up deficits in their credit score or income documentation to get approved. It signals to the lender that you will take over payments if needed.

However, co-signing a mortgage is not without risks, including:

  • Legal responsibility for debt payments and taxes
  • Impacts to your own debt load and qualifying ability
  • Potential credit damage if payments are missed
  • Headaches untangling everything if relationships deteriorate

If you decide to co-sign, have a candid discussion regarding expectations upfront and develop a co-signer agreement. This should protect all parties in worst-case defaults or changes in the ability to pay.

Also, explore alternative guarantor options like the Canada Housing and Mortgage Corporation co-sign program before putting your home at risk.

Using Home Equity Loans to Finance Gifts

What if you want to gift a large lump sum for a home purchase but don’t have enough savings? This is where home equity loans or lines of credit come in.

You can tap the equity in your home to cash out funds as a gift without expecting repayment. Amounts over the annual tax-free gifting limits may be subject to income tax.

This strategy turns gift money you’ll someday leave your heirs into an early inheritance. It can allow your children to buy sooner, saving years of rent payments.

However, it also erodes the estate value you’ll eventually pass on, reduces your cash flow in retirement, and can complicate things if marriages dissolve.

Proceed carefully and document transferred funds as an irrevocable gift to avoid repayment demands.

Alternative gift financing options to explore include:

  • HELOC with interest-only payments to preserve cash flow
  • Smaller amounts are gifted annually over several years
  • A down payment loan is structured as a declining balance loan with repayment terms

Finding an approach aligned with your financial priorities and risk tolerance levels is key.

Getting the Best Possible Mortgage Rate

Whether you gift, loan or co-sign to assist with a home purchase, make sure your child shops around for the lowest interest rate and fees on their mortgage. Ways to optimize their rate include:

  • Getting pre-approved to lock in rates for 90-120 days during the home search
  • Comparing bank-posted rates and then negotiating using brokers or competing offers
  • Ensuring their credit score is as high as possible before applying
  • Looking into special first-time home buyer incentive programs

Adding even 0.5% to their mortgage interest costs over 25 years adds up tremendously. Shopping around could save $30K+ over the lifetime of the home loan.

Maintaining Ongoing Financial Safety Nets

Once the home purchase is complete, don’t neglect ongoing safeguards and risk management steps. This includes:

  • Keeping sufficient home insurance coverage protecting your shared investment
  • Establishing automated direct mortgage payments from your child to prevent late fees
  • Having a plan to refinance the mortgage into your child’s name alone eventually
  • Detailing any gift or loan amounts in your will to avoid disputes among heirs later

Owning a home has many long-term benefits but can also carry unforeseen costs. Ensure your child sets aside home repair savings in case the hot water tank bursts or the roof needs replacing. You want this property purchase to be a blessing, not a burden over time.

Get Expert Guidance From the Cash Loans Canada Team

For over 15 years, Cash Loans Canada has provided Canadians access to guaranteed secured personal and business loans. Whether you need funds to give a down payment or require a line of credit yourself to tap equity, the Cash Loans team has flexible debt solutions to meet your situation.

With expertise across mortgage loans, home equity loans, car loans, and more, Cash Loans makes borrowing easy with:

  • Fast approvals – Know if you qualify instantly
  • Funds in 24 hours – Money deposited quickly
  • 98% approval rates – Even with poor credit
  • No credit checks – Won’t hurt your score
  • Flexible repayment – Tailor loan terms to your budget

Before assuming more debt, even with the best intentions to help your family, speak to a Cash Loans Canada advisor for transparent guidance. This will safeguard your financial stability while empowering younger generations to achieve the dream of homeownership.