refinance

Refinancing to Help Your Kids Buy Their First Home

Published July 2, 2026 · By YYZ Mortgage

The “Bank of Mom and Dad” is now a huge force in Canadian housing. Nowhere more than in the GTA. The average home here ran about $1.07 million in May 2026 (TRREB). Even the smallest down payment on a home at that price is close to $70,000. Many parents have real wealth to help with. But it is not in a savings account. It is in the house.

Here are the five main ways GTA parents turn home equity into a child’s down payment in 2026. We cover the trade-offs of each one.

Option 1: Refinance and gift the money

A refinance swaps your current mortgage for a bigger one. You can borrow up to 80% of your home’s appraised value (what it is worth). The extra comes out as cash you can gift.

Illustrative example: Maria and Sam, both 58, own a Markham home worth $1.2 million. They still owe $300,000 on it. Eighty percent of the value is $960,000. So they could take out up to $660,000. But they only want $100,000 to top up their daughter’s down payment. Their new $400,000 mortgage costs about $2,090 a month over 25 years. That is at roughly 3.94% (5-year fixed, as of July 2026, OAC — on approved credit — and subject to change). It is about $520 a month more than they paid before. That $100,000 turns their daughter’s 10% down payment into 20% on a $650,000 condo. She pays no default insurance at all.

What to know:

You must qualify for the new, bigger mortgage. Lenders check your income and your credit. You must also pass the stress test (your rate plus 2%). This is the catch for retired or semi-retired parents. Pension and investment income counts, but the bar is real.
Timing matters. A refinance mid-term brings a prepayment penalty. Doing it at your renewal date avoids one. If your renewal is within 120 days, you can line both up. See when to start your mortgage renewal.
Costs: appraisal, legal fees, and maybe a penalty. Plan on $1,500–$3,000, plus any penalty.

Try the new payment with our mortgage payment calculator. Then see our refinance page for the steps.

Option 2: A HELOC — take money as you need it

A home equity line of credit (HELOC) fits in the same limits. The HELOC part is capped at 65% of your home’s value. Mortgage plus HELOC together can reach 80%. It works like a credit line you can dip into:

You pay interest only on what you draw, as a minimum. The rate floats. It is usually prime + 0.5%, about 4.95% as of July 2026 (OAC, subject to change).
Take only what you need, when you need it. That helps if the closing date is not set yet. It also helps if the gift comes in stages.
No penalty structure to worry about. Money you have not drawn costs nothing.

The trade-off: HELOC rates float with prime. They run higher than the best fixed refinance rates. The open door also takes discipline. A common mix: set up the HELOC now, while you still work and qualify with ease. Then the money is ready when your child finds a home.

Option 3: The gifted down payment — what lenders want

However you raise the cash, the gift itself follows set rules. Lenders welcome gifts from close family. On many files, the whole down payment can be a gift. But they want paperwork:

A gift letter, signed by you. It states the amount, your relationship, and the property address. It must say the money is a true gift with no repayment expected. Lenders take this seriously. A hidden loan changes your child’s debt numbers. Faking it is fraud.
A paper trail. Most lenders want the money in your child’s account about 15–90 days before closing. Bank statements must show where it came from.
No gift tax in Canada. The gift itself is tax-free. But raising the cash can cost you tax. Selling investments can trigger capital gains. RRSP withdrawals count as income. Home equity, taken by refinance or HELOC, is often the most tax-friendly source. Check with your accountant.

One more note many lawyers raise. If your child buys with a partner, a gift can become shared property. A set-up with more structure might not. Each side should get independent legal advice (advice from their own lawyer) before a large gift. Not because things will go wrong. It is cheap insurance.

Thinking through the options for your family? Talk to us — we’ll map your equity, your file, and your child’s file together, at no cost.

Option 4: Co-signing — for an income gap, not a cash gap

A gift fixes a down payment problem. But maybe your child’s issue is income. They cannot pass the stress test for the mortgage they need. A gift alone will not fix that. That is where co-signing (or being a guarantor) comes in.

Know what you take on:

Full legal responsibility. If payments stop, the lender comes to you for the whole mortgage. Not a share of it.
It uses up your borrowing power. The co-signed mortgage counts as your debt. It shrinks what you can borrow for your own refinance, renewal, or downsizing plans.
Your credit is exposed to how they pay.
Exit plan: many lenders will drop a co-signer at renewal, or by refinance, once the child qualifies alone. Agree on that plan up front.

Gifting and co-signing can also combine. Some families gift a modest amount and co-sign. Then they unwind the co-sign after a few years of raises. Is your child early in the process? Point them to our first-time buyer playbook. Also show them the FHSA and HBP stacking plan in FHSA vs Home Buyers’ Plan. The programs they use matter as much as the help you give.

Option 5: For parents 55+ — the reverse mortgage route

Here is the case the first four options do not solve. You are retired. Your GTA home holds seven figures of equity. But your pension income will not qualify for a big refinance. Or you just do not want a new monthly payment in retirement.

A reverse mortgage is built for exactly this. It is a loan on your principal residence (the home you live in). Homeowners 55 and older can often get up to about 55% of the home’s value. The exact share depends on age, property, and location. You can take it as a lump sum or in stages. And:

No monthly payments are required. Interest is added to the balance. It is repaid when you sell, move out, or from your estate.
You keep ownership and stay in your home.
Qualifying rests mainly on age and equity, not income. The wall that blocks retired parents from a refinance mostly goes away.
A no-negative-equity guarantee (a promise that you, or your estate, will never owe more than the home’s fair market value — what it would sell for — when it is sold) comes with Canadian reverse mortgage products. It holds as long as you keep taxes, insurance, and upkeep current.

The trade-offs are just as real. Rates run higher than a regular refinance. And since nothing is paid monthly, the balance grows over time. That means less equity later for you or your estate. For some families, that is a poor fit. For others, helping a child buy now, and watching them build their own equity, is just what they want their wealth to do.

Reverse mortgages are our specialty. If this option speaks to you, start with our reverse mortgage guide or book a conversation. We’ll show you real numbers for your age and your home. Then you can weigh all three paths — reverse mortgage, refinance, and HELOC — side by side, with honest math.

Choosing the right tool

Your situation	Likely best fit
Working, strong income, want lowest cost	Refinance at 80% LTV (time it with renewal)
Want standby money, timing not set	HELOC
Child short on down payment only	Gift (from any source above)
Child short on income qualification	Co-sign — with an exit plan
55+, retired or light income, equity-rich	Reverse mortgage

However you help, two rules hold. First, document everything the lender’s way — gift letters and paper trails. Second, do not put your own retirement at risk to speed up theirs. The best long-term gift is parents who stay on solid ground with money.

We are a brokerage licensed by FSRA (Ontario’s financial services regulator), in the Dominion Lending Centres network. A big part of our work is helping GTA families set this up well across generations. Reach out for a no-obligation review of your options.

This article is general information, not financial, legal or tax advice. Mortgage products are subject to lender approval (OAC). Rates and product details change — confirm current terms before deciding. Speak with a licensed mortgage professional about your situation.

Frequently asked questions

How much equity can I take out of my home to help my child buy?

A conventional refinance lets you borrow up to 80% of your home's appraised value, minus what you still owe. On a $1.2 million GTA home with a $300,000 mortgage left, that is up to $660,000 you could take out, if you qualify for the bigger mortgage on your income and credit. How much you should take is a different question from how much you can.

What does a gift letter for a down payment need to say?

Lenders want a signed letter with the giver's name and relationship, the gift amount, and the property address. It must say the money is a true gift, with no repayment expected. Most lenders also want the money in the buyer's account 15 to 90 days before closing. Gifts from parents and close family are welcome, and can often cover the whole down payment.

Is a gifted down payment taxable in Canada?

No. Canada has no gift tax, so parents can gift any amount to an adult child with no tax on the gift itself. But raising the cash can cost you tax — selling investments or taking money out of an RRSP can trigger tax, and borrowing the money adds interest costs. Ask a tax professional about the best source for the gift.

Should I co-sign my child's mortgage instead of gifting money?

Co-signing adds your income to their file, but it makes you fully responsible for the whole mortgage, and it counts as your debt and cuts your own future borrowing power. Many families use a gift for a down-payment gap and save co-signing for an income gap. Some lenders let a co-signer come off later, once the child qualifies alone.

What is the reverse mortgage option for helping kids buy a home?

Homeowners 55 and older can often get up to about 55% of their home's value through a reverse mortgage, with no required monthly payments — interest is added to the balance and paid back when the home is sold or the owners move out. It suits retired parents who have lots of equity but cannot, or do not want to, take on a new monthly payment. The trade-off is a higher rate than a regular refinance, and a loan balance that grows over time.

Does gifted money affect how much mortgage my child qualifies for?

A gift fixes the down payment, but it does not change income qualification — your child must still pass the stress test on their own pay for the mortgage they need. A bigger gift can still help, by shrinking the mortgage they need or by pushing them past 20% down, which removes default insurance. If income is the real problem, a gift alone may not be enough.

This content is general information, not financial, legal or tax advice. Mortgage products are subject to lender approval (OAC). Speak with a licensed mortgage professional about your situation.