As noted in one of my columns this week, house affordability in some cities has become notably worse over the past couple of years. If this keeps up, we're going to have wrap our heads around the idea that some young adults will never own a house. For now, a lot of parents are keeping the ownership dream alive by helping their kids get into the market.
Sometimes, this help can be a mistake. Consider this question submitted by a reader: "How we can help our two sons with their first home purchases? We are ages 62 and 64 and working full time, so to take [the money] out of our RRSP would be expensive. Would a reverse mortgage on our paid-for house be an option?" My answer: It's an option, but not one you should be exploring.
A rough rule for parents deciding if they should help their kids buy a house: Do it only if you, first, won't have to go into debt and, second, won't dip into your retirement savings. This disqualifies the RRSP option in the case of the parents who want to help their sons, and the reverse mortgage. With a reverse mortgage, you're essentially borrowing against the future selling price of your home. These parents are still relatively young at ages 62 and 64 – they could conceivably rack up a decade or two of interest on their reverse mortgage before selling their home. They might not have enough equity left at that point to cover their financial needs.
Parents, it is not a financial emergency if your kids can't afford a house. There are plenty of cities around the world where houses are a luxury. People own condos or townhouses instead, they move to more affordable suburbs or, yes, they rent. Parents do not need to put their financial health at risk to help with a home purchase.
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Rob's personal finance reading list…
Racking up travel points for free
A McGill University law student has found a way to earn enough travel rewards points to take first-class flights around the world. He does it through "manufactured spending," which means buying things that can be converted to cash and sold. Basically, earning the points cost him nothing.
Tips for buying carry-on luggage
What to look for when buying carry-on luggage. Make sure you get the details right so you don't get dinged for the cost of checking your bags when travelling.
The best days for shopping bargains
Not just Black Friday, which is Nov. 24, or Cyber Monday, which is the Monday following Black Friday. There are other days when you might be able to land a better bargain than usual.
How to have the money talk with your roommate
Tips on how to talk to a roommate to make sure that household expenses are fully shared. I figure this is useful info in light of how expensive rents and houses in some cities will force more young adults to live with roommates.
Time to replace your smartphone? Not necessarily
Have you felt the urge to replace your phone, tablet or computer because it's slowing down? Here's an explanation of why this happens and what you can do about it.
Today's featured financial tool
The Ombudsman for Banking Services and Investments has a new, more consumer-friendly website. The OBSI is where you go if you have been unable to resolve a complaint with your bank or investment firm.
In case you missed these Globe and Mail personal finance stories
- How a young miner living in a small town spends his $92,000 salary
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– This is what I think you should do with your Enbridge shares right now (for Globe Unlimited subscribers)
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