Mortgage advice | Mortgages | Discussion forum

A suggestion I heard was to not tell them that you will help. Let them work hard to arrange a mortgage with which they can live and afford. Only after they have already worked out details would you give them your assistance. That way, you are a 'bonus' to help them reduce principal and not part of the base planning. They should not be counting on your generosity in planning for monthly payments. They need to be able to stand on their own two feet.

I'm following this ... both my kids mortgages are coming up for renewal this summer.

No one knows until in hindsight. One issue for 'first timers' is they have almost no financial flexibility at all and any surprises to higher costs with a variable rate mortgage can be devastating. With a 5 year fixed, or perhaps a 3 year fixed, they have some breathing room (certainty) to get some grip under the soles of their feet by the end of the term.

Anecdote: Stepson and his then wife, for their first place, got a 6 year fixed rate for the same rate as a 5 year fixed and went with that to provide some certainty and lower stress. With a kid later and the premature death of his wife, the certainty of a fixed rate was what he needed at the time.

He has since renewed this past December with a variable rate (prime less 95bp) five year term after considerable discussion with ourselves and our consensus was variable was now the way to go (with more than 50% equity now in the property) and a belief that BoC rates were more likely to continue to go down (or hold) rather than increase.

I think that unless your granddaughter can get a variable rate at least 90-100bp lower than prime with potentially an option to lock-in with say 3 months notice, they may be too vulnerable to not go with a fixed rate.

I shouldn't comment further but some mechanism (agreement) should be built into the title as regards how the condo would be disposed of in event of a relationship breakup in a young couple who may not be together in a few years. Or if not on title, something in the co-hab about how to extricate themselves rationally in event of a break up.

In my opinion, fixed or variable should be personal decision. I took my first mortgage when everyone anticipated rates will go down and they actually did.
I decided to go with fixed rate, anyway. I wanted predictability with my monthly payments. I told myself that my mortgage payments are akin to apartment rent. Also, they don't go up, as apartment rent usually does, so I am better off.
Someone else might look differently and cry at amount of money they are 'losing' from taking fixed when rates went down 2-3 years later.

The feature I would recommend to have with mortgage is ability for pre-payments. I would suggest to look for both monthly pre-payment that allows to increase monthly payment without penalty and also lump sum prepayment.
You never know what will happen in next 2-3-5 years. My first mortgage had these options, my career took off and instead of 25 years I managed to pay my mortgage in 9 years.
Becoming debt free homeowner so soon was really big deal for me.

There's two, separate things going on here, in my view.

One is you're giving them money, you've decided, so that's that.

The second is mortgage advice. Personally I never give any other capable adult money advice, as I don't know the future I want zero involvement in whether that advice ends up being good, bad or neutral (1/3 chance of advice being of use), family or not. But (if asked) I'm happy to advise re factors to consider in their decision, information that they might want to look into, etc. But I give zero indication of a personal preference re their decision.

Absolutely nobody can predict interest rates - any more than they can predict the value of the condo in five years. Ignore any predictions or scheming about this. What you have is risk of higher rates. If rates go lower, no problem. What I believe you want for these two people is "no problem", but you can't directly get that, so best solution is to minimize risk

A good way to minimize risk is to take a longer but affordable term. Rates may go down in the interim, but maybe not. Ignore such potential changes. Consider that you bought rate insurance by taking longer term. Like most insurance, you may never need to use it, but it was still important to buy it.

I think you sense that you are at risk of being too emotional about this. You love and are proud of your granddaughter, and you have confidence in her boyfriend. That's wonderful, but even the most promising of relationships can falter and fail. Speak to a lawyer about setting up the purchase in such a way that YOUR investment in HER will be safe if the relationship should fail; and INSIST that it be done this way if you are to contribute. If you can't bring yourself to do this, be aware that you are investing in an untested relationship and be prepared to mop up her tears and give her more money if it should come to that.

Is it too late for you to adopt me? LOL
I too am an only child and only grandchild. I earned 3 university degrees; received $800 total from family towards these. They could have afforded much more. I have never been anything but frugal. I hope your granddaughter appreciates how lucky she is and that she will always be kind to others who are less so.

Bill said
I don't know the details but an elderly long-time widow a few doors down gave a daughter money (not sure what the arrangement was) to get a house with her boyfriend/husband (I'm not sure which), relationship ended, daughter moved back home with mom as guy refused to leave their house, somehow at the end of all the legal stuff the neighbour recovered little if any of the money she put in. She's now in her 90s and since the last 10 years she's had to live on very little as she lost most of her little pile, according to the versions I got from a couple of other neighbours who know her.

I've been around long enough to not be surprised at the ending. At all.  

I’ve heard very similar. And worse if from another country and returns to their home country. And a real mess if DIY renovations begin.

Loonie said

…That's wonderful, but even the most promising of relationships can falter and fail. Speak to a lawyer about setting up the purchase in such a way that YOUR investment in HER will be safe if the relationship should fail; and INSIST that it be done this way if you are to contribute. If you can't bring yourself to do this, be aware that you are investing in an untested relationship and be prepared to mop up her tears and give her more money if it should come to that.

Some thought is definitely needed about those possibilities which are not as rare as one would like.

One friend's marriage ended in less than a year. A few months after the happy day, she was diagnosed with stage IV cancer and passed away. I later learned her family had helped out significantly with the downpayment for their home. The family was not happy when the husband refused to return the money.

Another friend's marriage ended in less than six months. I found out a few years later when he called and asked if I was interested in going to his wedding. Again!

I thought it was odd for him and his wife to be renewing their vows after only a few years! No, he wasn't renewing his vows to his ex-wife!

HermanH said
A suggestion I heard was to not tell them that you will help. Let them work hard to arrange a mortgage with which they can live and afford. Only after they have already worked out details would you give them your assistance. That way, you are a 'bonus' to help them reduce principal and not part of the base planning. They should not be counting on your generosity in planning for monthly payments. They need to be able to stand on their own two feet.  

Sound advice as we see too many stories of people going for the max financing approvability and end up with no slack when poop happens (job loss, inflation, interest rates, emergencies, ...) and end up blaming everybody else for the issues they got themselves into ...

Norman1 said
Don't need to be a co-owner. One can place a charge on the property second to the bank so that the the bank has the first mortgage.

Maybe on the couple's 25th anniversary, one can include a discharge letter of that charge with their anniversary gift.  

That doesn't help buyers qualifying for a first mortgage in the first place which was what my gratuitous comment on 1% beneficial ownership was really about, not about securing one's gift with a second mortgage/lien.

Banks appear to be no longer happy with co-signers to a mortgage for qualification purposes. They want direct ownership so they can go after the benefactor in a mortgage impairment situation.