It’s not easy for young people to get into the housing market. Some parents may be in a position to give their child a hand. And co-signing a mortgage is one option. But is it a good idea? Nicole Ewing, Director, Tax and Estate Planning, TD Wealth, joins Kim Parlee to help answer this question.
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* Today on Ask MoneyTalk, we answer a question we're hearing around parents helping their kids buy a home. Nicole Ewing, Director of Tax and Estate Planning at TD Wealth, joins me now with the question. And here it is-- we're thinking of co-signing a mortgage for our daughter. Good or bad idea?
* Well, we want to make sure that we're thinking about all of the considerations. So it could be a bad idea if you've not done that. I like to think about co-signing a loan as, essentially, you are taking that loan for yourself with all of the responsibilities, but with a whole lot less control.
* That sounds bad.
* I think it's bad. Ultimately, you are putting your name on this loan. You are responsible for it. But you might not know when things go off the rails. You might not have noticed that the payment hasn't gone through or that there's going to be an issue with getting that payment in on time.
- It might impact the availability of your own credit. So you need to be thinking about, what are you going to need? And will you have that room to be borrowing when this loan is taken into consideration as well? Because it's, essentially, counted against you as well. And then we think about if your child moves a partner into the home, for example, if they have a live-in spouse all of a sudden, now, you've entered into a whole host of other issues, again, that you don't necessarily have control around.
- So we have family harmony issues where if things are a little uncomfortable, are you going to raise them in time? If things aren't paid, are you, then, going to be required to make those payments? And yes, you are going to be required to do it. So having a full understanding that co-signing the loan means that you are, essentially, taking that loan and giving up the control to somebody else.
* Alright, eyes wide open when you go into this. OK, so if somebody is listening to this and go, great, I still want to help my daughter, but I don't want to do it that way, what are the options?
* There's some fantastic ways to help. So we might want to help with the down payment. We might want to allow our children to live in our homes longer so that they can save that additional money. We may just have financial literacy conversations with them to help explain how you can grow that down payment more quickly-- so perhaps we're using our Tax-Free Savings Accounts where we can grow our money tax free, making use of the First Home Savings Account. So all of those sorts of tools that the government makes available to allow us to save for a home more efficiently, you can help your children know about those, apply for those, and then, hopefully, save for those as well.
* And for someone who, again, who's listening saying, OK, great, how do I figure out what strategy is the right one to do?
* Financial advisors are fantastic at this. They can look at your full picture. They can look at what you are trying to achieve for your goals as well as your children-- help do some of that modeling, look at what the different options are and give you some great advice.
* Nicole, always a pleasure. That is Nicole Ewing, Director of Tax and Estate Planning at TD Wealth. And if you have a question, please send it in to moneytalk@TD.com.
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* Well, we want to make sure that we're thinking about all of the considerations. So it could be a bad idea if you've not done that. I like to think about co-signing a loan as, essentially, you are taking that loan for yourself with all of the responsibilities, but with a whole lot less control.
* That sounds bad.
* I think it's bad. Ultimately, you are putting your name on this loan. You are responsible for it. But you might not know when things go off the rails. You might not have noticed that the payment hasn't gone through or that there's going to be an issue with getting that payment in on time.
- It might impact the availability of your own credit. So you need to be thinking about, what are you going to need? And will you have that room to be borrowing when this loan is taken into consideration as well? Because it's, essentially, counted against you as well. And then we think about if your child moves a partner into the home, for example, if they have a live-in spouse all of a sudden, now, you've entered into a whole host of other issues, again, that you don't necessarily have control around.
- So we have family harmony issues where if things are a little uncomfortable, are you going to raise them in time? If things aren't paid, are you, then, going to be required to make those payments? And yes, you are going to be required to do it. So having a full understanding that co-signing the loan means that you are, essentially, taking that loan and giving up the control to somebody else.
* Alright, eyes wide open when you go into this. OK, so if somebody is listening to this and go, great, I still want to help my daughter, but I don't want to do it that way, what are the options?
* There's some fantastic ways to help. So we might want to help with the down payment. We might want to allow our children to live in our homes longer so that they can save that additional money. We may just have financial literacy conversations with them to help explain how you can grow that down payment more quickly-- so perhaps we're using our Tax-Free Savings Accounts where we can grow our money tax free, making use of the First Home Savings Account. So all of those sorts of tools that the government makes available to allow us to save for a home more efficiently, you can help your children know about those, apply for those, and then, hopefully, save for those as well.
* And for someone who, again, who's listening saying, OK, great, how do I figure out what strategy is the right one to do?
* Financial advisors are fantastic at this. They can look at your full picture. They can look at what you are trying to achieve for your goals as well as your children-- help do some of that modeling, look at what the different options are and give you some great advice.
* Nicole, always a pleasure. That is Nicole Ewing, Director of Tax and Estate Planning at TD Wealth. And if you have a question, please send it in to moneytalk@TD.com.
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