Adult Child.
Your kid can't get into the market on their own. You have equity sitting in your house. Here's how the two fit together, and how you get paid back while doing it.
How it works
Mom and Dad become the bank
You use a home equity line of credit on your own house to cover the down payment and closing costs. Your kid gets into the market without waiting years to save.
Buy a house with a basement apartment
A detached 3-bedroom with a 1- or 2-bedroom basement unit. Two doors, two incomes.
Your kid lives in one unit, a tenant pays for the other
The rent covers the mortgage, taxes, insurance, utilities and the payment back to you. Your kid pays about what they'd pay to rent anyway, except now they own.
Ownership: 99% your kid, 1% you
You're on title, so you're protected. Your kid gets the growth, and as their principal residence it's generally tax-free.
A real example: $700,000 in Brampton
Detached 3+1, up/down. 10% down as a first-time buyer, with the $4,000 land transfer tax rebate.
What Mom and Dad put in
Mom and Dad don't hand over cash from their savings. They borrow $80,000 against their own house using a HELOC (home equity line of credit). A HELOC is money the bank lets you borrow because you've already paid off a big chunk of your home. Think of it like a credit card backed by your house, but with a much lower interest rate, about 5%.
That $80,000 covers two things for the kid:
| 10% down payment on the $700,000 house | $70,000 |
| Closing costs (lawyer, land transfer tax after the $4,000 first-time buyer rebate, etc.) | $10,000 |
| Borrowed on Mom and Dad's HELOC | $80,000 |
Each month Mom and Dad only owe the interest on that $80,000, about $330. The rent from the house covers it (see below), so it costs them nothing out of pocket. The $80,000 itself gets paid back to Mom and Dad down the road, for example when the house is refinanced or sold.
What comes in each month
| Tenant, main floor | $2,800 |
| Adult child, basement | $2,000 |
| Total in | $4,800 |
What goes out each month
| Mortgage | $3,130 |
| Property tax | $500 |
| Home insurance | $150 |
| HELOC payment back to Mom and Dad | $330 |
| Utilities (both units, conservative) | $450 |
| Total out | $4,560 |
The house pays for itself. Mom and Dad get their HELOC interest covered every month.
Where you are in 5 years
Mortgage paid down
Over 5 years, your kid makes 60 mortgage payments of $3,130. Most of that money is interest, which is the bank's fee for lending the money. The bank keeps it. But a chunk of every payment goes toward paying off the loan itself, and that part stays in the family as ownership of the house.
| Paid to the bank over 5 years (60 × $3,130) | $187,800 |
| Interest. The bank keeps this. | $126,160 |
| Loan paid off. You keep this as equity. | $61,640 |
Each year the split gets better: a little less to interest, a little more to paying off the loan.
Appreciation
At a conservative 3% a year, the house is worth more in 5 years. That growth belongs to your kid.
| Purchase price | $700,000 |
| Value after 5 years at 3% a year | $811,500 |
| Growth. Your kid keeps this. | $111,500 |
in new equity on an $80,000 loan from Mom and Dad
216% return over 5 years. Over 43% a year.
Example only. Figures are estimates based on a $700,000 purchase with 10% down, a 5-year fixed insured mortgage at about 4.09% with a 30-year amortization, and a HELOC at about 5%. Rates, rents, taxes and utility costs vary by property and change over time. Appreciation is not guaranteed. Principal residence tax treatment may not apply to the rented portion of the home. Speak with your mortgage broker, lawyer and accountant before proceeding.