According to a recent survey, almost a quarter of millennials and Gen Z homeowners said their parents had given them money in the past year to help with a rent or mortgage payment. That’s not hard to understand considering how much skyrocketing inflation has been eating into everyone’s earnings lately. If your child were to ask you for help with their mortgage in the near future, is it a good idea?
When Parents Might Want to Help
- Temporary Help – Of course, if your children experience a sudden job loss, it’s natural to want to tide them over until they get hired again. Or if they encounter a medical emergency, you want to ease their burden while they recuperate. Other temporary needs might include a divorce or death in their family.
- To Earn Money as a Mortgage Lender – Sometimes the financial markets make it really difficult to earn money on your savings. It might be enticing to lend your child a mortgage, allowing them to get into a house at good terms and let you bring in greater returns on your money.
- Help Kids Overcome Down Payment Hurdle – Buying a home can be a huge undertaking these days as home prices have jumped dramatically over the past few years. If you become a co-signer or decide to loan them most or all of the down payment, they can become homeowners faster and start building equity.
No matter the reason, there are several important things to consider before giving your child money for their mortgage.
Consider Your Financial Situation
The size of your heart may outgrow the size of your budget in these cases. It’s important to take a good look at your own financial picture before committing to help your child with their mortgage. Even if you have plenty saved for retirement, you will be losing out on the interest or growth you’d make on the money you lend them. And circumstances can change very quickly if you have a medical emergency or accident. Remember that your child has many more years to earn money for retirement than you do. If you give up too big of a chunk of your savings now, you may not be able to replenish it before you need it.
Consider the Emotional Ramifications
Money and family don't always mix well. Deals gone sour can ruin relationships. If your child fails to keep their end of the bargain, how will it affect your feelings towards them? Are Thanksgiving dinners destined to be tense until they repay you? Be aware that helping your child with their mortgage can dramatically shift the dynamics of your connection.
Consider the Tax Repercussions
There are plenty of tax rules surrounding how much you can gift to someone in a calendar year as well as rules about how much interest you have to charge on loans you make. Your gifts and loans may also affect your tax status, so consult your accountant before making any final decisions.
No matter what type of mortgage help you decide to offer your children, it is important that you have a frank discussion about your expectations at the outset. They need to know at the beginning how long the help is available and what is required of them to continue receiving it. You should also spell out the consequences if they do not meet your requirements.
If your child or someone you know is considering a mortgage, please give us a call. We love to help everyone that we can with their mortgage needs.