Multi-Generational Living: 2024 Update

For some people, the soaring cost of home ownership has made single-family living a very difficult and even unattainable dream.  And while co-owning a home, such as in a multi-generational living context, helps share costs, it can also be tricky – especially if a family member wants to be released from the mortgage or passes away.

Interest rates and home prices are pushing the limits of affordability. According to a May report from National Bank economists, in the first quarter of 2024, homeowners shelled out nearly 60 per cent of their pretax income to pay the mortgage on a median-priced home in Canada. The 'old' personal finance rule was that your housing costs shouldn't be more than about 30%. 

Meanwhile, Rate Hub's 'affordability index', which tracks the income required to qualify for a mortgage, found it got tougher to purchase a home in 11 of 13 tracked cities in May. For those trying to get into the market – and especially first-time buyers – it’s tough to cobble together even the minimum 5-per-cent down payment.

But, there’s a workaround: living with your parents. While hardly a new concept, multi-generational living is on the rise in Canada.

According to the latest data from Stats Canada, the number of multi-generational households grew by 21 per cent from 2011 to 2021, representing 3 per cent of all Canadian households, or 441,750 homes, in 2021. As well, more than 500,000 – nearly one in 10 – of all children between the ages of zero to 14 live in the same household with a grandparent.

And perhaps the most telling sign of the times: The proportion of young adults living with at least one parent has been on the rise across the country, but particularly so in Ontario, at a whopping 49 per cent. Statistics Canada also found that one out of six residential properties, owned by people born in the 1990s, were co-owned with their parents in 2021.

Buying a home with multiple adults can certainly make it easier to get a mortgage. Assuming everyone in the household is working, more income is used to qualify. Pooling together funds can make it easier to make a 20% down payment, avoiding the added cost of mortgage default insurance. As a whole, the group can put forth a stronger mortgage application, and access more competitive interest rates.

Recurring costs, such as mortgage payments, property tax and utilities, can be split. Meanwhile, everyone involved is building equity and helping to create generational wealth. The government even offers a tax credit to offset the cost of creating a secondary in-law suite.

In Canada, there are two main products that cater to those looking for a multi-generational mortgage. The first is a “joint tenancy” mortgage, where all parties are on the title and own an equal share of the property, and are equally on the hook for mortgage payments.

The second is a “tenants-in-common” arrangement, which allows family members the ability to be responsible for different amounts of the mortgage. All parties own the home, but the amount of equity they’re entitled to will be based on their mortgage share.

In the last 2 years, three of my 'parent' clients have renovated their homes to accommodate two family units. The 'family' uses the down payment that the adult children saved, which they'd hoped would be enough to buy their own home, to add on and renovate the parental home. The 'down payment' money goes to adapting one home to accommodate everyone's separate needs. And the children are added to the ownership title and the mortgage which builds equity while everyone still haves their autonomy and privacy.  Other benefits: The children are close to help with their aging parents, and the parents, becoming grandparents, are right there to help take care of the grandchildren. 

Another client of mine recently purchased a property that already has zoning approval to build a lane-way house that will be for their adult children. As their children's family grows and they need more living space, there's always an opportunity for them to switch homes with their parents.

But, as is often the case with families and money, sharing a mortgage can get complicated. It's crucial that legal agreements that spell out what happens in the cases of missed payments, who gets to live in the home and estate planning. It’s especially important to figure out, at the onset, what will happen to the mortgage if someone wants to leave, sell or passes away.

Let’s say an owner – such as Mom or Dad – wants to move out and leave their equity to their adult children. In this case, they can be released from the mortgage, with the kids taking on their share of the payments. If an existing co-owner wants a pay-out, however, the mortgage will need to be refinanced. In each case, the lender would have to approve the change in ownership and new lending arrangements., including re-qualifying for the mortgage on their own.

If someone dies, and the mortgage is a joint tenancy agreement, ownership can simply be transferred to the surviving mortgage holders. In a tenants-in-common arrangement, though, a beneficiary of the deceased can take ownership of their share. They may choose to live in the home and make payments, or perhaps sell out to the others. In some cases, the death of an owner could require the surviving mortgage holders to re-qualify, depending on the health of the estate and their own income.

Splitting housing costs can make plenty of good financial sense these days, but it’s important for all family members to enter such living situations with their eyes wide open. Blood may be thicker than water, but an iron-clad legal agreement will keep things harmonious – hopefully for generations to come.