Should I Use My Home Equity to Help My Kids Buy a House?

You have worked hard, paid down your mortgage and built up equity in your home.

Meanwhile, your children are trying to buy their first property and discovering that saving a deposit can feel like chasing a moving target.

So, naturally, you start wondering:

Could we use some of our home equity to help them?

For many New Zealand families, the answer may be yes. But helping your children into a home is not simply about whether you have enough equity.

The more important question is whether you can help them without putting your own home, borrowing options or retirement plans under unnecessary pressure.

What Does Using Your Home Equity Actually Mean?

Home equity is the difference between the current value of your property and the amount you still owe on it.

For example, if your home is worth $1 million and your mortgage balance is $300,000, you have approximately $700,000 of equity.

That does not necessarily mean you can access or use the entire $700,000.

A lender will still consider your income, existing debts, living expenses, age, future plans and ability to meet any additional financial obligations.

When parents talk about using their equity to help a child, they may be considering several different arrangements.

These can include:

• Giving the child money toward their deposit
• Lending the child money
• Borrowing against the parents’ home
• Acting as a guarantor
• Offering part of the parents’ property as security
• Purchasing the property together

Each option creates different financial, legal and family consequences.

Option One: Giving Them Money

A financial gift is often the simplest option to understand.

You give your child an agreed amount toward their deposit, with no expectation that it will be repaid.

This can strengthen their deposit and may reduce how much they need to borrow.

The obvious risk is that the money is no longer available to you.

Before gifting a large amount, consider whether you may need that money later for:

• Your own mortgage
• Renovations or home maintenance
• Healthcare costs
• Supporting other family members
• Travel or lifestyle goals
• Retirement income
• Moving or downsizing

You should also think about what may happen if your child buys with a partner and the relationship later ends.

Clear documentation and legal advice can help everyone understand whether the money is a gift and how it should be treated.

Option Two: Lending Them the Deposit

Instead of giving the money away permanently, you could lend it to your child.

This may allow you to help while retaining the expectation that the money will eventually be returned.

A family loan should still be documented properly.

The agreement should address matters such as:

• How much has been lent
• Whether interest will be charged
• When repayments begin
• Whether regular repayments are required
• What happens when the property is sold
• What happens if the child separates from their partner
• What happens if either party dies
• Whether the loan can be recalled early

The child’s bank will also need to understand the arrangement.

A family loan can affect the child’s overall financial position and may be treated differently from a genuine gift when the lender assesses the home loan application. Banks may require formal documentation, such as a deed confirming how and when the debt must be repaid.

Having the agreement in writing is not a sign that you do not trust each other.

It protects the relationship by making everyone’s expectations clear from the beginning.

Option Three: Borrowing Against Your Own Home

You may be able to increase your own mortgage and provide the borrowed money to your child.

This is sometimes described as releasing or accessing equity.

In this arrangement, the additional debt is legally yours.

Even if your child agrees to cover the repayments, you remain responsible to your lender.

This means you need to consider:

• Whether you can afford the repayments yourself
• What happens if your child loses their job
• Whether the extra debt delays your retirement
• Whether it affects your ability to refinance
• Whether you still have room for unexpected costs
• How rising interest rates could affect repayments
• What happens if you want to sell your home

A home loan top up involves borrowing more money using the equity in your property, and it remains subject to the lender’s approval and lending criteria.

This can be a workable strategy, but it should be tested against your own long term financial plan before you proceed.

Option Four: Acting as a Guarantor

A guarantee allows you to support your child’s borrowing without necessarily handing over cash at the beginning.

Your home, or part of its equity, may be used as additional security for your child’s loan.

This could help your child buy with a smaller deposit or improve the strength of their application. However, the child must still meet the bank’s lending and affordability requirements.

The major risk is that a guarantor can become responsible for the debt if the borrower does not pay.

Depending on the guarantee, the lender may pursue the guarantor for missed payments, interest, enforcement costs or other amounts covered by the agreement.

Consumer Protection recommends asking whether the guarantee can be limited to a particular loan or capped at a maximum amount, rather than agreeing to an unlimited or all obligations guarantee.

A limited guarantee could, for example, cover only the portion needed to support the child’s deposit, rather than the entire home loan.

The exact terms matter enormously.

Independent legal advice should be obtained before signing a guarantee. Bank guarantee documents also commonly recommend advice from someone who is not acting for the lender, borrower or another guarantor.

What Happens If Your Child Cannot Repay the Loan?

This is the uncomfortable question every family needs to discuss.

Even responsible people can experience:

• Redundancy
• Illness or injury
• Business failure
• Relationship separation
• Unexpected expenses
• Interest rate increases
• Reduced working hours

If your child cannot meet the repayments, you may need to contribute.

In a serious situation, the lender may seek repayment from you or rely on the property offered as security, depending on the arrangement you signed.

Lenders must assess whether a guarantor can meet the obligation without substantial hardship, but that does not remove the underlying financial risk.

Ask yourself honestly:

Could we afford to make these repayments if our child could not?

If the answer is no, the arrangement may be placing too much pressure on your finances.

Could Helping Them Affect Your Retirement?

This is one of the most important considerations.

You may have significant equity in your home, but equity is not the same as retirement income.

You will still need somewhere to live, and selling the house does not necessarily release all its value if you need to purchase another suitable home.

Additional borrowing or a guarantee could also affect:

• How soon you can become mortgage free
• How much you can contribute to investments
• Whether you can reduce your working hours
• Your ability to buy your next home
• Your access to lending later in life
• Your ability to help another child
• The amount available for retirement

A plan that looks manageable while you are earning a full income may feel very different once you retire.

Consider what would happen if you wanted to sell or downsize while your home was still supporting your child’s lending.

The guarantee or security may need to be removed, refinanced or repaid before your property can be released.

This is why the timing and exit strategy matter just as much as the initial approval.

What Is the Exit Strategy?

Family lending arrangements should not be left open ended.

Before helping, agree on how your involvement will eventually end.

For example:

• Will your child refinance once their property has increased in value?
• Will the guarantee be removed once their loan reaches a certain level?
• Will a family loan be repaid when the property is sold?
• Will repayments begin once their income increases?
• Is there a target date for reviewing the arrangement?

Do not assume the bank will automatically release your guarantee after a few years.

The lender may need to reassess the child’s financial circumstances, the property value and the outstanding loan before agreeing to remove your security.

Put regular review dates in place so the arrangement continues moving toward independence.

Should You Help Every Child Equally?

Another challenge is fairness.

If you help one child into a property, will you be able to offer the same support to another child later?

Equal treatment does not always mean giving every child the same amount at the same time. Their circumstances may be very different.

However, it is worth discussing:

• Whether the support is a gift or an advance
• Whether it affects future inheritance arrangements
• Whether other siblings know about it
• How everything will be recorded
• What happens if your financial position changes

These conversations can feel awkward, but unresolved expectations can create much bigger problems later.

Questions to Ask Before Using Your Home Equity

Before making a commitment, work through these questions:

Can we afford the worst case scenario?

Do not base the decision only on what should happen.

Consider what you would do if your child could not make repayments for six months or longer.

Will this delay our own goals?

Understand the effect on your mortgage, investments, retirement and lifestyle plans.

Is the arrangement documented?

Family support should be recorded clearly, even when everyone has a strong relationship.

Have we received independent advice?

The parents and children may need separate legal advice because their interests are not always identical.

Is the guarantee limited?

Understand exactly how much debt is covered, for how long and under what circumstances.

How will we exit?

Agree on the pathway for removing the guarantee, repaying the family loan or releasing the parents’ property.

What happens if circumstances change?

Discuss job losses, illness, separation, death, relocation and the sale of either property.

Helping Your Children Without Sacrificing Your Own Financial Security

Helping your children buy a home can be incredibly meaningful.

It may allow them to enter the property market sooner and create greater stability for their future.

But the decision needs to work for both generations.

Your children should not gain financial security by unintentionally weakening yours.

The right approach depends on your equity, income, mortgage, retirement timeframe, family relationships and appetite for risk.

Before committing, make sure you understand:

• What you are giving or guaranteeing
• What you could become responsible for
• How it affects your future borrowing
• How the arrangement will end
• Whether your retirement remains on track

At Levridge, we can help you look at the full picture, including your mortgage, cashflow, retirement goals and the different ways you may be able to support your children.

Because helping your family should feel generous and considered, not like a financial decision you may regret later.

Book a free 15 minute chat with Levridge to explore what helping your children could look like without losing sight of your own financial freedom.

This article provides general information only and does not constitute personalised financial or legal advice. Lending criteria and individual circumstances vary. Obtain appropriate financial and legal advice before entering a guarantee, family loan or property arrangement.