One Toronto mortgage broker told the Star this week that a stunning 75% of the kids looking for loans have gift downpayments from their Boomer parents.
“How else do you think someone in their 30s can afford a Leslieville semi?,” he said.
“I see deals where parents are contributing $50,000, $100,000, $400,000.
The Mom of one of my best friends sold her farm for $2.5 million and gave him $450,000.
He bought a condo in Liberty Village for cash.”
When I read that I thought: Wow, those parents are really generous giving their children that kind of cash.
It’s nice that they give them up to the 20% required so that they don’t have to pay the mortgage insurance or to help them “break into the housing market”, but… is it really as helpful as you think it is?
1. THEY COULDN’T SAVE THE DOWN PAYMENT ON THEIR OWN
.. so what makes you think they’ll be able to continue paying the mortgage easily if they’re used to having money handed to them?
I mean if you don’t go through the process of clearing your student loans first and/or or saving up that hefty 20% down payment, you’ll never really feel the true value of what it means to spend $800,000 on a home, taking out a $640,000 mortgage.
What will they do when the interest rates rise? (And believe me, they will!)
What will they do if they lose their jobs?
Saving a down payment for a house is not just the down payment itself, it’s also the process of saving that money that matters because it shows them how realistic their budget is for the kind of money they want to splash out on a house.
2. ARE THEIR PARENTS JUST ENABLING THEM?
With their parents generously topping up their down payments to 20%, or giving them a “boost” of $100,000 here and there, are they just enabling them?
For sure, they’re enabling the housing market to reach sky high, nose bleed prices that for me, are simply ridiculous (comparing this city of Toronto to Chicago a city of a similar size, it is unbelievable what people will pay for a home here).
Are parents just feeding fish to their kids instead of teaching them how to catch it on their own?
CASE IN POINT: THE ONLY ONE WHO GETS FINANCIAL HELP? THE BUM IN THE FAMILY
I think there’s a little something to that, because looking at my own family, the only one who has ever gotten a lot of help by way of debt repayment, or has been offered gross sums of money to “invest in a place of his own”, is my bum of a brother.
Yes, I said it, my bum of a brother.
He takes after my father in the sense that he feels entitled to everyone else’s money, and doesn’t stop effin’ whining about it every time we meet, along with his standard: “I hate my job because I don’t make enough money.” response when you ask him how things are going.
“So put up [with it] or shut up“, I think I snarled at him in frustration after the umpteenth time.
He never said it to me again.
An example would be with the way he treats everyone else’s home like a takeaway restaurant.
He will actually come to your house with the intention of raiding your fridge or freezer to eat for the week, with no shame whatsoever, or he will actually straight out, ask you to save all the leftovers of the meal for him to take home to eat, even though you were planning on eating the food that you cooked.
Yet he is the only one my mother has ever offered to help out.
In fact, she lent him $10,000 during the time he was paying off his loans (sitting at home, playing video games, working some dead-end temp job), and he conveniently forgot that he owed her the money until she blurted it out in the heat of the moment when we were having an argument.
Did anyone else in the family have student loans? Yes. We ALL got student loans because my parents gambled their lottery windfall away.
Did any of us get student loan help aside from The Bum? No.
Just the other day, I got wind of her offering to re-mortgage her NEWLY PAID OFF HOME to help “give him a start in life”.
You have no idea how fast I jumped on that idea and squashed it, because the last thing I want, is my mother to give away money to someone who has no track record of ever paying back anything on time in his life.
Did any of us get offers to “help out” with down payments on houses or condos aside from The Bum? No.
So it made me wonder what kind of grain of truth is in parents giving money to their children to “help them out”, which in the end, just creates a dependence on the parents to be strengthened, and the kids don’t see the point in working any harder or learning how to save their money.
Why would they?
If you were gifted $500,000 from your parents, even if you earned $100,000 at your job, you’d feel pretty good about being able to basically spend your entire paycheque because…. hell, you have $500,000!
At the most, you might save $10,000 on your own, but you wouldn’t really see the need to. Would you?
One last opinion on the subject is when I heard a friend say:
My mother is extremely proud that she doesn’t have to give us any money. She told us that we are all smart enough and independent enough to find a way to get what we want, and she’s thrilled she raised such great kids.
..so they don’t get any help at all, and aren’t in the slightest bit resentful that she doesn’t give them anything.
Of course, when she passes they might get $10,000 each or so, but they aren’t asking for the money now because they just don’t need it. They’d rather that she use the money for herself.
The only time I can really see it NOT affecting children is if they’ve hit their 40s and they’re already set in their money habits. If they’re already successful, independent, saving enough for their own retirement, and then you gift the money to them, they are more likely to bank it than to spend it.
However I have casually observed that if parents give money to their children before these money habits are formed (before the age of 40), their children tend to veer towards developing lazy money habits.