More and more parents are helping their kids buy their first home — but are they putting their own retirements at risk?

Buying a home requires financial discipline, astute planning and — these days — tapping into the bank of mom and dad, or even grandma and grandpa. Getting financial help from family toward a home purchase isn’t new, but advisers are seeing an uptick in the trend with their clients. “When people are saying, ‘I'm going to buy a home now,’ or ‘this is how I got into the market,’ it’s due to an inheritance, or their parents are giving them a chunk,” says Samantha Sykes, a financial adviser with Raymond James.

That "chunk" is key because housing costs are astronomical; according to the latest report from the Canadian Real Estate Association, the national average home price was $646,134 in November 2023, up two per cent from November 2022. And Canadians are despondent when it comes to their luck: a recent Ipsos poll found that 63 per cent of Canadians who don’t own a home have .

For parents who are in a position to gift, this often means that they're balancing their with their own housing costs, along with their child’s. If you’re in this situation or plan on helping your kids buy a home, how can you help without compromising your retirement? “(Helping their kids) is part of their retirement planning," Sykes says.

"There's that additional pressure of, ‘I have to afford my own retirement and I have to afford my kids’ education. And on top of that, I need to afford my kids’ real estate and my own real estate, so it's just that the savings pressure is insanely high.” Gifting money toward a home is very common, says Sykes, who says the average amount is between $60,000 to $100,000.

Stephanie Kotsopoulos, a financial adviser and partner at Basis Wealth in Toronto, says parents should have a financial and retirement plan in place before they gift money to their kids. “I have a client, and her parents downsized, so they gave her $100,000 of the proceeds of their home to put toward her condo,” she says.

“It's, ‘This is the gift that we're giving you now, versus maybe down the road as an inheritance.’ ” The family should also be very clear about expectations regarding the money, says Kotsopoulos. It’s fine for the parents to want to help if they can, but are there any terms and conditions to the amount of money loaned? “If something happens to those parents who will be mortgaged again, will the kids step in to help out? What does that look like for them down the road? It can also get really messy with, ‘We gave you this, so you have to take care of us.’ " Monthly gifting is also an option, says Sykes, who has clients who will gift a lump sum amount then a monthly amount to help with the mortgage.

Loans are also an option and both Sykes and Kotsopoulos say that everyone involved should be very clear about the terms. This is what Robin Marwick did when she and her cousin bought their house in 2005 at the suggestion of her uncle. “Our grandmother lent us money for the down payment to supplement what we had saved, mainly RRSP contributions withdrawn under the Home Buyers' Plan,” she says.

“Later she lent us more for renovations.” The two are paying the money back monthly at the prime rate. Some families are pooling their resources to get their dream home, says Sykes. The parents and the child sell their respective homes and pool the funds to buy a bigger home that has a nanny or in law suite.

The parents get the suite while their child has the bigger space to accommodate their family. “They pull together funds, everybody's happy, but you really have to watch your P's and Q's, especially if it's your in laws,” she says. Due to the high cost of housing, some parents are starting early by using the Tax Free Savings Account (TFSA) and the First Home Savings Account (FHSA), says Sykes and Kotsopoulos.

The FHSA allows a prospective first time homebuyer to save for that first home tax free (up to certain limits). Kotsopoulos says parents will put aside money until the child turns 18 and can then open a TFSA or a Registered Retirement Savings Plan (RRSP) to take advantage of the Home Buyers' Plan, which lets you withdraw a maximum of $35,000 from your registered retirement savings plan to buy or build a home for yourself.

Then the money is deposited and can be invested until it’s needed for a down payment. Sykes says this is an option for parents who want to help their kids buy a home without compromising their own retirement. Parents can buy whole life insurance in their child’s name. This kind of policy covers the child for their entire life and also accumulates cash value.

The child can then borrow against the value of the cash built up in the policy for the down payment. This is when a loan is taken out using your property as security. With reverse mortgages, you can take out up to 55 per cent of the value of your home, if you’re 55 years and older. Both advisers say it’s important to really understand what to expect if you use this route to give money to your children.

“When interest rates were lower, it was probably more favourable,” says Kotsopoulos. “But I think there just needs to be a lot of understanding surrounding the terms and conditions, what that will look like down the road and also the age of the parents that are doing them.” That’s because you may need ready access to cash as you get older due to illness or to fund your own retirement, says Sykes.

“Remember, it’s nice to take care of your kids, but you have to take care of yourself,” she says..