Ask MoneySense
My husband and I are considering buying a second home by tapping the equity in our current property. We own our primary residence outright—no mortgage—and its value is roughly $1.2–$1.5 million.
Our plan is to support our adult children as they move out while keeping both properties as part of our estate for the long term. We also anticipate downsizing at some point in the future.
Two questions: Is borrowing now sensible given current interest rates, and is this a good approach from an estate-planning perspective?
—Deanna
Should parents help their children buy a home?
Deanna, many parents think about helping their adult children get into the housing market, but fewer actually take on new debt to do so. A 2021 report from a major Canadian bank found that about 30% of first-time buyers received family support, and the average gift was roughly $82,000. In high-cost cities such as Toronto and Vancouver, average family gifts were notably higher. Despite the visibility of parental help, only a small share—about 5.5% in that study—borrowed against their own home to fund their children’s purchases.
Helping children buy a home can be done in several ways: gifting cash, co-signing a mortgage, co-owning the property, or borrowing against your own equity and buying a second home yourself. Each approach has different financial, tax and family implications to weigh.
How to finance a home for your children
If you plan to use your home equity, the two main routes are a secured line of credit (HELOC) or a mortgage. A HELOC offers flexibility and typically requires interest-only payments, which can keep monthly cash flow manageable. Mortgages generally carry lower interest rates than HELOCs but have blended payments that include principal and interest, increasing monthly outlays.
Consider your timeline. If your intention is to hold the second home only for a few years until you downsize, taking on short-term debt to facilitate your children’s transition can make sense. It lets your children move out when they’re ready without forcing you to sell or rush your own downsizing plans. On the other hand, if you’re retired or depend mainly on investment income, qualifying for new credit under mortgage stress-test rules can be harder.
Reverse mortgages are another option if traditional bank financing is not available, but they carry their own costs and risks. Also remember that home prices can fall, so the plan to sell later to pay off debt could produce less net proceeds than expected.
If you have investments—especially a taxable non-registered account or funds in a tax-free savings account—a strong argument exists for using some of those assets instead of borrowing, provided you won’t sacrifice your retirement security. You would need to earn an after-tax return higher than your borrowing cost to come out ahead by leaving investments untouched. With the bank prime rate near 7.2%, HELOC rates are often prime plus 0.5%–1%, while mortgage rates may be lower. That makes the comparison between borrowing and drawing on investments particularly relevant.
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Should you hold the property in your name or your child’s name?
A key consideration is whether your child can qualify for and afford a mortgage on their own. If they can’t qualify, that’s a strong signal they may struggle to cover carrying costs long term. If you plan to gift the funds outright and don’t expect repayment, affordability is less of a concern for you—but it’s still worth ensuring your child can cover utilities, maintenance and unexpected repairs.
It sounds like your plan is to buy and own the property yourself while your children live there. That’s possible, but you should agree in advance who pays which expenses. If you charge fair-market rent, the property may be treated as a rental for tax purposes, letting you deduct expenses such as interest, property taxes, condo fees, insurance and other costs against rental income.
One downside of keeping the title in your name is potential capital gains tax when the property appreciates. If the home were owned by your child and used as their principal residence, they could shelter that gain. Holding the property yourself may also create awkward situations later—if your child’s partner moves in, for example, or if family dynamics change and your child wants to buy their own place.
Document your wishes in a will and powers of attorney
Your will determines how your assets will be distributed on death, and you can specify whether both properties stay in the estate or pass to particular children. Also plan for incapacity: appointing a power of attorney for property or a similar province-specific legal agent lets someone manage the home if you become unable to do so.
Set clear instructions about the property your child lives in—whether it is to be kept, sold, or transferred under certain conditions—to avoid disputes and confusion later. Discuss these arrangements with your family and consider legal advice to ensure your documents reflect your intentions.
In summary, buying a second home for your children using equity from your primary residence can work, but it requires careful thought about financing, tax consequences, family expectations and your retirement security. Review your finances, talk through expectations with your children, and get legal and tax advice so you understand both immediate and long-term implications before proceeding.
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Read more from Jason Heath:
- Should you accelerate your mortgage payments—or invest?
- When does the “plus 1” rule apply to a principal residence?
- Financial gifts: What you need to know before giving money or investments
- Will you make money on your rental property?