With the high price of real estate in the Toronto area, some parents are helping their children buy a first home. It’s always great to help your kids if you can, but you have to think carefully about what you’re doing. This will ensure everyone knows whether it’s a loan or a gift and their obligations going forward.

If it’s a gift, there are no strings attached, but if it’s a loan, there will likely be a second mortgage registered on title to protect the parents. The bank will have to know about it and approve.

In some cases, where the kids cannot meet bank debt-service thresholds because their income is too low, parents are offering to include their own income and then to guarantee the mortgage. This is one solution, but many lenders then want parents on title to the property and to sign the mortgage. This is even if they may hold as little as a 1 per cent interest in the property.

They feel more secure if the parents are on title as opposed to just being a guarantor, although most lawyers could not explain the difference. In both cases, they are on the hook if the kids default. [Read more].