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As noted in one of my columns this week, house affordability in some cities has become notably worse over the past couple of years. If this keeps up, we're going to have wrap our heads around the idea that some young adults will never own a house. For now, a lot of parents are keeping the ownership dream alive by helping their kids get into the market.
Sometimes, this help can be a mistake. Consider this question submitted by a reader: "How we can help our two sons with their first home purchases? We are ages 62 and 64 and working full time, so to take [the money] out of our RRSP would be expensive. Would a reverse mortgage on our paid-for house be an option?" My answer: It's an option, but not one you should be exploring.
A rough rule for parents deciding if they should help their kids buy a house: Do it only if you, first, won't have to go into debt and, second, won't dip into your retirement savings. This disqualifies the RRSP option in the case of the parents who want to help their sons, and the reverse mortgage. With a reverse mortgage, you're essentially borrowing against the future selling price of your home. These parents are still relatively young at ages 62 and 64 – they could conceivably rack up a decade or two of interest on their reverse mortgage before selling their home. They might not have enough equity left at that point to cover their financial needs.
Parents, it is not a financial emergency if your kids can't afford a house. There are plenty of cities around the world where houses are a luxury. People own condos or townhouses instead, they move to more affordable suburbs or, yes, they rent. Parents do not need to put their financial health at risk to help with a home purchase.
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