Canada’s housing affordability worsened in 2021 by the most in 27 years, as home prices – projected to increase by 20% by the end of this year, according to the latest Canada Real Estate Association (CREA) report – far outpaced income growth. The average selling price sits at $680,000 – and doesn’t appear to be changing anytime soon. The same report predicts that home prices will go up another 5.6% in 2022, bringing the national average up to $718,000.
Today, it takes almost six years to save for the average down payment at a 10% savings rate of a median-household income. That’s compared to less than five years just one year prior. As a result, home buyers are being priced out of the market, and turning to the Bank of Mom and Dad for help. When your clients turn to you for advice on how to help their children buy a home, there are many options that you can suggest, such as buying the property outright and then renting or giving it to their child, providing the down payment for the home or co-owning the house. In addition to helping their children, this can also be a real estate investment for your client.
If your client chooses to go this route, but is concerned they may not have the income to support a second traditional mortgage, a private mortgage could be an excellent option. Private lenders can provide quick, creative and flexible financing solutions, whether it’s pulling equity out of the client’s existing home for a down payment or exploring a blanket mortgage that covers both the new purchase and their existing home. Using other properties as collateral could also increase the likelihood a more challenging deal or remote property can get approved for financing. Beyond flexibility, private lenders can turn deals around much more quickly than banks or other traditional lenders, and with much less intensive documentation.
Private lenders can help your clients tap into their home equity to access cash at far lower interest rates compared to other personal loans or credit cards. Your clients may be able to qualify for a second mortgage on a six-, nine- or 12-month term, and it could even turn out to be a more affordable financing option than a traditional mortgage, depending on the circumstances. Private lenders may also be able to offer a prepaid mortgage option, so your clients don’t have to find the cashflow to make separate payments to different lenders over the term of the mortgage. In addition, private lenders like CMI can help your clients with a blanket mortgage, which is a single mortgage that covers two or more properties.
If your clients are ready to take this step with their kids, encourage them to have an open conversation. It’s important to have the terms of the agreement laid out clearly, whether it’s a loan, gift, or a different arrangement. It is also wise to recommend that your clients consult with a tax professional to ensure they are aware of the potential tax impact related to a loan or gift of a down payment or property. Discussions around finances can be difficult, and as a trusted expert in the field, your clients will appreciate your guidance on how to approach the topic, as well as potential solutions.
Whether you are a new broker or a seasoned veteran, it’s always a good idea to take stock of your business and look for ways to improve, continue to drive success, and best serve your clients.
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