Your parents offer $100,000 — but you owe them 3.55% a year. Is that a gift?

The offer arrives in a form a lot of Canadians would recognize: your parents have $100,000 available for your down payment. It's not quite a gift — they'd like the money back eventually, and in the meantime you pay them interest, say 3.55% a year. Better than a bank. Family rate.

Before you say yes, there are three numbers worth having: what the $100,000 actually buys you in house, what it costs, and what your lender will call it. The first one is the surprise.

$100,000 of down payment does not buy $100,000 of house

Take a household earning $120,000 with $60,000 saved, buying at a 4.5% contract rate on a 30-year amortization as a first-time buyer. Run it both ways:

• $60,000 down: maximum home price around $581,000
• $160,000 down: maximum home price around $670,000

An extra $100,000 of down payment moved the ceiling by about $88,000.

That's not a rounding error, it's the whole structure of Canadian mortgage qualification. Both scenarios are limited by income, not by the down payment — the GDS and TDS ratios cap what your salary can service at the stress-test rate, and no amount of cash down changes your salary. What the extra $100,000 really did was push you over the 20% threshold, which removes the CMHC premium (about $16,000 in the first scenario) and shrinks your monthly payment from roughly $2,710 to $2,569.

So the honest description of the offer isn't "it buys me $100,000 more house." It's "it buys me about $88,000 more house, kills a $16,000 insurance premium, and takes $141 off my monthly payment." Still good. Just not what most people picture. Check your own before-and-after with the affordability calculator.

What it costs — and the part lenders care about

At 3.55% on $100,000, interest runs $3,550 a year, or $295.83 a month. Over five years that's $17,750 if you're paying interest only and the principal is still outstanding at the end.

Now the question nobody asks until the mortgage application: does that $295.83 reduce what you qualify for?

In this example, no — and the reason is worth understanding. Lenders allow housing costs up to about 39% of gross income (GDS) and total debt up to about 44% (TDS). On $120,000 that's $3,900 and $4,400 a month, leaving $500/month of room for non-housing debt before it starts eating your mortgage. A $295.83 payment fits inside that gap.

Push a little harder and it stops fitting:

That last row is the one to watch. If your parents want the principal back on a schedule — $100,000 over ten years at 3.55% is $991 a month — the loan stops being free of consequence and costs you roughly $69,000 of buying power. It has clawed back most of what it gave you.

Interest-only, and it's nearly invisible to your lender. Amortizing, and it's just debt with a friendly face.

The word "gift" is a technical term here

This is the part that catches people. Lenders distinguish sharply between a gifted down payment and a borrowed one:

• A gift requires a signed gift letter confirming the money is not repayable. That's the whole point of the letter.
• A loan from family is a debt. It must be disclosed, and the payment goes into your TDS calculation like a car loan would.

An arrangement described to the lender as a gift while a repayment expectation exists on the side is misrepresentation on a mortgage application. If your parents want the money back, say so on the application and structure it as a loan — the numbers above show it usually survives the test anyway.

There's a related trap on the other side of the family. If your parents are considering co-signing instead, that's a far larger commitment than a loan — see what co-signing actually costs.

Is 3.55% a good rate?

For context, the CRA prescribed rate — the floor for family loans structured to avoid attribution problems — has sat at 3% through 2026. So 3.55% is slightly above the prescribed rate and well below any mortgage you'd get from a lender. From your parents' side, it's also more than a savings account pays, which is usually the actual reason the interest is there.

The tax picture is simple in one direction and less so in the other: a genuine gift has no tax consequence in Canada for either side. A loan means your parents have interest income to report, and you generally get no deduction for interest on a personal residence. Ask them whether the interest is worth the paperwork, because it may be costing them more in tax than it earns.

The alternative: just wait

The comparison people skip is doing it yourself. Saving the same $100,000 takes:

• $1,500/month: 5.6 years
• $2,000/month: 4.2 years
• $2,500/month: 3.3 years

Before growth, and before whatever the market does in the meantime. That's the real trade — years of your life against a family financial entanglement. The down payment savings tool will put a date on it, and rent vs buy shows what the waiting period costs or saves.

Questions to settle before the money moves

1. Is the principal ever coming back, and when? Interest-only and amortizing are financially different animals, per the table above.
2. What happens if they need it? A parent's health event can turn a comfortable loan into a forced sale. Ask about the call provision.
3. What if you separate? Money from one partner's parents becomes a live question in a breakup. A documented loan is much easier to trace than an undocumented "gift."
4. Are there siblings? Six figures to one child is an estate conversation whether or not anyone has it out loud.
5. Is it written down? Every answer above is worth a page of plain English signed by everyone. This is protection for the relationship, not a sign of distrust in it.

The takeaway

A $100,000 family loan at 3.55% is a good deal — just a smaller and more specific one than it appears. It buys about $88,000 of additional home, erases a $16,000 CMHC premium, and costs $3,550 a year. Structured as interest-only it barely touches your qualification; structured with principal repayments it can cost you $69,000 of buying power and hand back most of the benefit. Run both versions through the affordability calculator before the family dinner, and bring the numbers with you.

Quick answers

Does a family loan reduce how much mortgage I qualify for? Only once the payment exceeds the gap between your GDS and TDS limits — about 5% of gross income, or $500/month on a $120,000 income. Interest-only payments usually fit inside it; amortizing payments usually don't.

Can I tell the lender a repayable family loan is a gift? No. A gift letter states the money is not repayable. Declaring a loan as a gift is misrepresentation on a mortgage application — disclose it as a loan instead.

How much extra home does $100,000 of down payment buy? Less than $100,000 if your income is the binding constraint. In the example above it moved the ceiling by about $88,000, while removing roughly $16,000 of CMHC premium.

Mortgage and savings figures delivered by Metrestick. Underlying data: Canadian mortgage qualification rules (GDS/TDS stress test, CMHC premium schedule, federal down-payment tiers) and 2026 CRA tax parameters. Example assumes $120,000 household income, a 4.5% contract rate, 30-year amortization, and default property tax and heating allowances; the CRA prescribed rate is the Q3 2026 figure. Illustrative, not advice.