Unlocking Home Equity for Down Payments

In a climate where homeownership symbolizes success, an increasing number of Canadian parents are tapping into reverse mortgages to support their children financially — particularly for down payments on homes. This shift is highlighted by HomeEquity Bank, which reports a staggering 32% surge in the number of parents using their home equity to provide financial gifts in 2025 compared to the previous year.

The Motivation Behind the Trend

Yvonne Ziomecki-Fisher, an executive at HomeEquity, explains that parents today prefer to offer financial assistance during their lifetimes instead of waiting until inheritance. "They want to leave a legacy and witness its benefits first-hand," she remarks. This trend is not just about home purchases; funds are also being used for weddings and educational expenses.

The Raise in Reverse Mortgages Despite Risks

Although this approach can strengthen familial bonds, financial advisors warn about hidden dangers. Jason Heath, managing director at Objective Financial Partners, cautions that reverse mortgages can drain retirees' savings, making them a 'last resort' option. With interest rates hovering around 7% for reverse mortgages compared to 4% for regular loans, the eventual cost could outweigh the perceived benefits.

Understanding the Mechanics of Reverse Mortgages

Homeowners over 55 can typically borrow up to 55% of their home's value tax-free. However, the current mortgage must be paid off first. When the home is sold, the reverse mortgage lender is repaid, which can minimize what’s left for heirs and future expenses such as long-term care.

The Growing Market and Its Implications

The reverse mortgage industry is still a modest segment of Canada’s $2-trillion residential mortgage market, valued at around $9 billion. Yet, it's experiencing rapid growth, with a nearly 20% increase in lending from HomeEquity Bank and a whopping 47% rise from Equitable Bank.

Potential Pitfalls for Parents and Children

Despite good intentions, many advisors express concerns about the long-term financial well-being of both parents and children. Financial planner Sara McCullough labels relying on reverse mortgages as a 'dangerous game,' risking the primary financial asset of many retirees. Moreover, this strategy may inadvertently lead children to stretch their budgets, potentially resulting in financial strain.

Alternatives to Consider: Saving Smart

To avoid jeopardizing their retirement, experts recommend parents encourage children to develop saving habits instead. Providing financial support later on, after children have established good financial discipline, might yield better long-term results. Alternatives like savings withdrawals or home equity lines of credit (HELOCs) could offer more balance without incurring massive debt.

Final Thoughts: A Fine Line Between Help and Harm

As this trend continues to rise, it’s crucial for parents to weigh the risks and consider their own financial futures before jumping into reverse mortgages. Helping children achieve homeownership doesn’t have to come at the expense of parents’ security — smart planning and open conversations can pave the way for a more sustainable approach.