In my last blog, I talked a little bit about the transfer of wealth that’s funding some down payments these days. It’s not small amounts that I’m seeing – recent purchases have had gifts anywhere from $100,000 to almost a million dollars.
Effectively, there’s three main ‘sources’ for these gifts, cash savings, investments and existing equity. Each have advantages but there can be drawbacks to all of them.
Cash Savings – This option is hopefully part of a wider financial plan, built around the idea of being able to gift money to children as well as planning for your own financial well being. If it’s not, then I strongly recommend you speak to a financial planner before taking any further steps.
Investment Savings – Again, this draw down should be part of a wider financial plan that you’ve discussed with your financial planner to ensure that you preserve a level of investment needed to maintain your planned lifestyle.
Leveraging Equity – This solution comes with several mortgage solutions dependent again on your planned lifestyle. You can leverage new mortgage financing, a home equity line of credit or even a reverse mortgage. Each of these options has different costs and requirements. It’s no surprise that leveraging equity should be part of a financial plan you’ve made with your financial planner.
The recurrent theme here is that if you’re thinking of giving a down payment to your children, then you need to plan that gift. Talk to your financial planner about what works best for you.
If you ( and your planner ) do have any questions on the mortgage financing available to you – I’m happy to help.
JB
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