Beyond the Bank of Mom and Dad: How to Gift a Down Payment, Protect Your Retirement, and Build Family Wealth

The “Bank of Mom and Dad” has become one of the most significant financial forces in the country. It’s a quiet force reshaping the housing market, driven by a powerful desire: helping the next generation secure a home.

The numbers are staggering. According to CMHC, 40% of first-time buyers across Canada receive a gift for their down payment.¹ This isn’t just a few thousand dollars, either. CIBC Capital Markets estimates that the average gift is about $115,000 nationally and even higher in Ontario ($128,000) and BC ($204,000).²

But here’s the question that often goes unasked: Where is this money actually coming from? It’s not always sitting in a savings account. An earlier CIBC Capital Markets report found that, in Toronto in 2020, nearly 1 in 10 parents who gave a down payment gift funded it with debt.³

While gifting is a generous and often life-changing act, how parents fund that gift is critically important.

Using a Home Equity Sharing Agreement (HESA) from Clay Financial to fund a down payment gift allows parents to access their home equity to help their children. This strategy not only helps achieve the immediate goal but is also designed to grow the family’s overall wealth, whether their properties appreciate a little or a lot.

The Giver’s Crossroads: Cash, Debt, or Equity?

For the fortunate few with $130,000 or more in cash or liquid investments – roughly the average for a down payment gift in Ontario – the decision is straightforward. This article isn’t for them.

This article is for those who want to support their children but could not previously make a gift as well as the 10% (and growing) of families who are already making these gifts but financing them with debt. Traditional debt products may not work best for every parent depending on their financial circumstances:

• Home Equity Line of Credit (HELOC): A HELOC is a revolving line of credit secured by your home. Though the rates can be attractive, it presents two major challenges. First, qualifying for a large enough line – often $100,000 to $200,000 for a down payment gift – can be difficult on a fixed retirement income. Second, even if you do qualify, you’re committing your monthly budget to making new payments, potentially in perpetuity.
• Cash-Out Refinance: This involves replacing your current mortgage with a brand new, larger one.
• Reverse Mortgage: A reverse mortgage is often easier to qualify for and allows homeowners 65 and older to access equity without a monthly payment. While this sounds appealing, it carries significant interest rate risk. The compounding interest can rapidly erode your own home equity, especially if your home doesn’t appreciate fast enough to offset the growing loan balance.⁴

Each of these debt-based tools forces a difficult trade-off, creating a direct conflict between the parents’ retirement security and the child’s homeownership dream.

An Aligned Alternative: The Home Equity Sharing Agreement

For parents that want to make a gift but cannot – or do not want to – take on debt, a HESA presents a compelling alternative. Clay is like an investor in your home, sharing in its future appreciation. It’s a different way to think about accessing your home’s equity.

Here’s how it works (simply):

1. Parents can access a portion of their home’s equity (up to 17.5%) as a tax-free, lump-sum payment.
2. There are no monthly payments and, since it’s not debt, no interest accumulates.
3. Instead of taking on debt and paying interest, the parents agree to pay Clay the original amount they received plus (or minus) Clay’s share of the home’s change in value at the end of the HESA. This means if the home’s value goes up, the total payment is higher. But if the home’s value goes down, Clay shares in that loss, and the total amount paid is less than the original amount received. This is the critical protection: your existing equity is protected, which is the opposite of a loan where the full balance is due regardless of your home’s value.⁵

The “Natural Hedge”: Sharing Risk, Not Just Money

This equity-sharing model has a powerful, compassionate advantage for parents looking to help their children enter the housing market. It provides a natural hedge for the family’s overall real estate exposure.

Here’s how: When real estate does well, the cost of the HESA is higher for the parents – but their children have also benefited from that same appreciation, growing their own equity. When real estate is flatter, the cost of the HESA is lower, protecting the family’s total wealth. As the case study below shows, this structure makes the HESA a wealth-generating tool at the family level, regardless of home price appreciation.

Conversely, debt is a fixed liability. Monthly payments or compounding interest are due regardless of what’s happening in the real estate market. A fixed debt obligation in a market downturn can rapidly erode home equity. A HESA eliminates this specific risk by partnering with homeowners to share in the market’s future – both the potential upside and the downside.

Case Study: How a HESA-funded Gift Can Create an Extra $500,000 in Family Wealth over 10 Years

Consider a scenario for a family in a very high-cost real estate market like Toronto:

The Family:

• The Parents: Own their home, valued at $1.9-million, that they love and plan to live in for decades. Most of their wealth is in their home and, having just recently retired, they cannot (and do not want to) take on new monthly debt payments. They considered a reverse mortgage but, since they plan to stay in their home long term, are weary about the risk of compounding interest eroding their equity.
• The Daughter’s Family: She and her husband have a growing family of four. They have pre-qualified for a mortgage at 4% but are struggling to save the 20% down payment for a $1.6-million home in their neighbourhood. They have $160,000 saved, but the remaining $160,000 gap to $320,000 feels impossible to close.

Let’s break down the 10-year outcomes for two paths this family can take in a real estate market where prices appreciate 4% per year on average.

Scenario 1: The “Wait and Save” Path

The daughter’s family keeps their down payment savings in a high-interest savings account earning 2.5%. While renting their current place for $4,500 per month,⁶ it takes them 9 more years to save the additional $160,000 that they need.

• 10-Year Outcome: They finally buy their home in the ninth year. After 10 years, they have only been building equity for a year and their total home equity is ~$555,000.

Scenario 2: The HESA Gift Path

The parents use a HESA to access $160,000 from their existing home equity. They have no new monthly bills to pay. In exchange for this amount, they agree to pay Clay the original amount plus (or minus) Clay’s share of the appreciation (or depreciation) at the end of the HESA. Based on the value of the parents’ home and the size of the HESA that they want, Clay’s share of any future appreciation is 33.7% while the share of any future depreciation is ~8.4%.⁷ The parents gift the $160,000 to their daughter, who combines it with her family’s $160,000 savings to buy the $1.6-million home immediately.

• 10-Year Outcome: The daughter’s family has been building equity for all 10 years. They’ve paid down nearly 30% of their original mortgage principal and captured ~$770,000 of price gains over the decade, both of which have grown their total home equity to ~$1,455,000.

The Result: A $500,000+ Difference

By using the HESA, the family’s collective home equity is $560,000 greater than if they had waited.

The parents’ gift allowed their daughter to leapfrog 9 years of renting and slow saving, and instead spend those 9 years building her own equity and memories in their new home. The result is a life-changing gift that the parents get to see the benefit of in their lifetime.

The Real Test: What if the Market is Flat?

The most compelling part of this analysis is that family-level wealth creation isn’t just a bet on rising home prices.

In fact, the family does best in a perfectly flat market (0% appreciation), gaining $614,000 in collective family wealth. Why? Because the HESA’s cost is tied to appreciation so, in a flat market, the parents’ cost of funding their gift is very low.

But what if prices do rise significantly and the cost of the HESA is higher? Even in a strong market appreciating 8% per year, the family comes out ahead by over $567,000. That’s even more wealth creation than in our original scenario above because, at this high rate of home price appreciation, the daughter and her husband are not able to close the down payment gap on their own, and so never buy a house within those 10 years.

This outcome powerfully highlights the “natural hedge” of the HESA. The value isn’t from timing the market; it’s from time in the market. The HESA unlocks the parents’ equity to give their children that time, while protecting the parents from downside risk.

Conclusion: A Smarter, Aligned Way to Gift

Gifting a down payment is a powerful way to change your family’s financial future. But financing that gift with traditional debt can be a risky strategy that pits the parents’ retirement against the child’s home. And as the numbers show, forcing the next generation to wait years to save can mean leaving over half a million dollars in potential family wealth on the table in the first decade.

A Home Equity Sharing Agreement can be a more responsive strategy that aligns benefits for the entire family while protecting the giftgiver from the downside risks.

• Parents unlock equity to provide a life-changing gift, but without the cash-flow-draining debt that can jeopardize their retirement or the risk that compounding interest erodes their home equity.
• The next generation – who often has the income but lacks the capital – gets to enter the market and begin building their own equity years sooner.

The result is that the entire family unit’s wealth is now growing in a smarter, more diversified way. They are capturing the appreciation on two homes, not just one. This is the true utility of the HESA when used as a tool to create and share intergenerational wealth.

To see how much equity you could potentially access, get your no-obligation estimate from Clay Financial today.

1. Analysis by CMHC of its Mortgage Consumer Survey (2025). ↩︎
2. Analysis by CIBC Capital Markets in “Gifting for down payment – an update” (2024). ↩︎
3. Analysis by CIBC Capital Markets in “Gifting for down payment – a perspective” (2021). ↩︎
4. See our earlier quantitative analysis comparing reverse mortgages to HESAs. ↩︎
5. Learn more about the cost of a HESA on our website. ↩︎
6. To make the scenarios comparable, we assume their monthly savings is equal to the amount of the monthly mortgage payment in the second scenario less the cost of their monthly rent payment. ↩︎
7. Sharing in future depreciation ensures the HESA cannot possibly erode the parents’ existing equity. Check out our HESA Calculator to see how home value and HESA amount affect how much future appreciation and depreciation may be shared at the end of a HESA. ↩︎