From A Woman's Perspective: May 11th, 2024 “More Canadian Seniors are Downsizing to Help Adult Children”

More Canadian Seniors are Downsizing to Help Adult Children
 

Good morning, Marilyn. 

With tomorrow being Mother’s Day, and Father’s Day just a few weeks from now, I thought I’d give some advice about a sure-fire way to win the “Parent of the Year” award… help your kid get their first home. 

You know that I am only partly joking, right Marilyn? Homeownership is a very serious issue right now, and many empty-nesters I talk with wonder aloud how their kids will ever be able to afford a home of their own. Property price increases have far outstripped wage increases, so it’s more than just conjecture that affordability is fading… it’s an economic fact!

Another fact is that more Canadian seniors than ever before are considering downsizing their homes to be able to provide financial assistance to their children or grandchildren to get into the real estate market. According to a poll conducted in 2021, one in four “zoomers” would do so. And in a recent Toronto Star report, almost 3 in 10 properties in Toronto are co-owned by parents and adult children. 

One thing is clear, our kids are increasingly relying on “the bank of mom and dad” to move from renting to owning. Here are some of the ways to make their dream your reality:

1. Deposit - This term is sometimes confused with downpayment. This is usually 5% of the purchase price and is needed immediately upon a successful offer to purchase. It is delivered to the listing brokerage in the form of a bank draft of money order, and is held against the purchase price until closing. 
    
2. Down payment - This is the total amount of funds set off against the purchase price, to lower the overall debt being carried in monthly mortgage payments. Usually the minimum down payment required by a lender will be determined by price of the property, and the amount the mortgage holder can qualify for is determined by their income.
    
3. Co-ownership of shared residence - Maybe you’ve decided you’d like to join forces and live together in the same property. There are several ways this could be accomplished: a home with a basement suite, a garden suite, or even a duplex. Understandably, these multi-generational property options are in short supply, however it might be an option to adapt your current home for two separate living quarters, or purchase a new property with renovation potential in mind. 
    
4. Co-ownership of separate residence - Perhaps it’s not possible or even preferable to share a residence but you still want to help. One of the biggest obstacles to home ownership first-time buyers face is having enough income to qualify for a mortgage. With the average 5-year fixed mortgage rate at 5.47% and the average 5-year variable mortgage at 6.94%, new buyers actually have to qualify as if rates were 2% higher. This means to carry a $600,000 mortgage (remember that would be purchase price less down payment, less deposit) you would need a combined family income of $147,000 to qualify. Parents could either a) gift money to increase the amount of down payment, or b) go on title to add to the family income pool to help qualification.
    
5.  One popular option is to have a real estate lawyer draw up an agreement for fractional ownership, where one party owns a percentage of the whole property. For example, amounts as low as 1% ownership can be arranged but for qualification purposes, all parties are considered equally responsible for payment. The reality of course is that little Johnny or Susy would be paying the whole deal. 

There are significant tax and estate implications, and many details must be considered to know whether the benefits outweigh the risks. Speaking to a real estate lawyer, your financial planning professional, and your mortgage broker can give you the answers you need.

At SMART Realty Solutions we help our clients find those properties that create new possibilities for lifestyle and legacy considerations. We not only work with seniors to find their next perfect home, but we are also increasingly working with their children because mom and dad won’t move until Junior is out of the basement! If you have first-time buyers in your family, or you’d like to meet to discuss how to help your kids get into the market by downsizing, please reach out. You can call me at 416-460-5636 or go to my website smartrealtysolution.com where this broadcast will be up as a blog post. 

Like everything we do at SMART Realty Solutions, our goal is to empower your decision making to enrich your future, and comes without cost or any strings attached. 
 

Sources:

https://www.thestar.com/real-estate/a-key-source-of-funds-for-some-toronto-homeowners-bank-of-mom-and-dad-helps/article_fd124a30-0700-11ef-b301-dbf79ea25233.html?utm_medium=social&utm_source=copy-link&utm_campaign=user-share

https://www.thestar.com/business/half-of-ontario-boomers-willing-to-downsize/article_8e095f4b-893d-5014-a440-4e8adcbd0ed5.html?utm_medium=social&utm_source=copy-link&utm_campaign=user-share

https://www.royallepage.ca//en/realestate/news/royal-lepage-survey-3-2-million-boomers-in-canada-considering-buying-a-home-within-the-next-five-years/?utm_source=rlpre&utm_medium=email&utm_campaign=company_news_rlpsphere_teams_learningserv_equipes_apprentissages&utm_content=Just%20Released%3A%203.2%20million%20Canadian%20boomers%20considering%20buying%20a%20home%20in%20the%20next%20five%20years

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