Real Estate Closing Costs in Ontario
Costs when Buying a House or Condo
Real Estate closing costs are the fees which you, as a BUYER, must pay when purchasing a home. These are fees which are normally payable in full on the day you get the keys to your new home (the “Closing Day”).
Closing costs can include the Land Transfer Tax, the Lawyer’s Fee, Title Insurance, and Adjustments for prepaid municipal tax and condo maintenance fees.
Balance of the Purchase Price (from the offer): This is the very large payment you will make on closing day. You will already have made a good faith deposit with your accepted offer.
The Balance of the Purchase price consists of any additional down payment you will be investing, plus the mortgage loan funds from the bank. The good faith deposit that you already made counts as part of your down payment.
You bring any additional deposit monies to your lawyer, and the bank sends your loan money to your lawyer.
Home inspection fee: This one is actually due before closing. If you are doing a home inspection as part of your offer, costs for this generally range from $300.00 – $500.00, and you must pay the Home Inspector on the day he or she does their inspection.
Appraisal fee: your bank lender will arrange an appraisal of the property at your expense, prior to advancing any mortgage loan. Approximate cost: $400.00 – $600.00
The Lawyer’s fee for the purchase of a home can vary, but it’s usually wise to budget about $2500.00.
Lawyers usually advertise a “base” fee, but will then add plenty of additional charges to pay for the various components of your purchase.
Almost always, once these additional fees are included, which include such items as title search fees, registration fees, disbursements, photocopies, courier costs, etc., the total amount will approach about $2000.00. Once the HST is added to this, the grand total can approach $2300 – $2500 dollars.
If you budget $2500.00, and it comes in less, you will be happy! Incidentally, when selling a house, the fee is usually a couple of hundred dollars less, as title search is not required.
These are typical regular legal fees. Lawyers’ fees can increase if there are any unusual circumstances associated with the sale – delays in closing, power of sale, will probates, etc.
Many lawyers offer a better rate if you are both buying and selling a home and they both close on the same day.
Title Insurance: These days almost every lawyer will include title insurance as part of their fee.
Once considered optional, Title Insurance is always a good idea, as it protects you against identity theft, typographical errors, and much more, for as long as you own the home. Cost: a one-time fee approx. $350.00.
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Land Transfer Tax
Ontario Land Transfer Tax: Is the tax that must be paid to the Province of Ontario on registration of a Deed. The rate of tax is based on the price of the home purchased. The calculation is as follows:
- First $55,000 X 0.5 %
- $55,000.01 to $250,000 X 1 %
- $250,000.01 to $400,000 X 1.5 %
- $400,000.01 to $2,000,000 X 2.0 %
- Over $2,000,000 x 2.5%
If you are purchasing a home in the City of Toronto, there is a second, additional tax! Toronto Land Transfer Tax amounts are similar to the provincial tax.
First Time Home Buyer Rebate
If you are a first time home buyer in Ontario you are eligible for an instant refund of the provincial land transfer tax up to $4,000. Any tax amount due over $4000.00 you must still pay.
Toronto has a similar policy for first time buyer rebates.
The Land Transfer Tax, whether it is just the Ontario tax, or if it also includes the City of Toronto tax, is a substantial expense. Definitely do your homework well in advance, so that you are prepared.
Check out our full article on Land Transfer Tax here: Land Transfer Tax Calculator
Lawyers can make “adjustments” when closing a real estate deal. For example, if the Sellers have prepaid their taxes beyond the closing date, they are entitled to get that money back. The same applies for condo maintenance fees, and occasionally, utilities.
If the Sellers have NOT paid their taxes, maintenance fees, or utilities, then there is an adjustment in favour of the Buyers. This means that the lawyers will pay all outstanding balances on these bills before any cash is released to the Sellers.
Adjustments, whether they result in a credit or a debit to the Buyers or Sellers, are calculated to the exact closing date of the transaction. They are always itemized in the Statement of Adjustments that you receive from your lawyer.
If the Seller has prepaid their municipal property taxes through to the end of the year, and your closing date is 60 days before the end of the year, then the Seller will be reimbursed for the extra payment they made. In a situation like this, you as the Buyer, will be required to pay this extra money up front, which compensates the Sellers, while the city taxes are prepaid when you take possession of the property.
If, on the other hand, the Sellers are BEHIND on their taxes, they will only receive a net amount on closing. The lawyers will deduct some of the money paid by the Buyers, and will pay the outstanding arrears with this.
Mortgage Insurance: If your down payment is less than 20% of the total purchase price of the home, Canadian banking regulations require that you pay a mortgage loan insurance premium to protect the lender.
This premium can be several thousand dollars, but it then allows you to buy a home for as little as 5% downpayment.
These fees can be prepaid up front, but they are usually added to the mortgage loan amount, adding a relatively small amount to your monthly carrying cost.
There are three companies which can provide this mortgage insurance, CMHC – Canada Mortgage and Housing Corporation, Sagen (formally Genworth Financial), and Canada Guaranty Mortgage Insurance.
PST on Mortgage Insurance premium: Even though the Mortgage Insurance Premium can be rolled into your monthly mortgage payment, there is PST tax which is assessed on the premium, and this PST amount must be paid in full at closing.
So just as an example, if the Mortgage Insurance fee is, say, $5000,00, you don’t have to pay that fee today – it is typically added to your total mortgage loan, resulting in a small increase in your monthly payments, but there is PST to pay on it. PST (not the full HST, only the provinicial portion) in Ontario is currently 8%, and 8% of $5000.00 is $400.00 – which is the amount you would have to pay your lawyer on closing day.
Mortgage Insurance application fee: an application fee for the Mortgage Insurance which ranges from $125.00 to $300.00.
Interest adjustment: Monthly mortgage payments to regular mortgage lenders are due on the 1st of the month. Unless the closing date is the 1st, you must pay the amount of interest that accrues by the 1st day of the following month, which is the Interest Adjustment Date (IAD).
For example if your closing date is March 15th, but regular monthly mortage payments commence on April 1st (the IAD), then an interest adjustment payment covering the cost of the loan from March 15th to the 31st must be paid.
Mandatory House Insurance
Home Insurance: all bank lenders will require you to have home insurance on your freehold property, before they will advance your mortgage loan funds (needed for closing).
Basic home insurance for an average house can range from $1000.00 – $1200.00 per year, and many insurance companies will require that you pay the entire year’s premium up front..
If you are buying a condo, the good news is that the building insurance is already included with your condo maintenance fees. Nevertheless it is also a good idea to get contents insurance for your unit, covering fire and theft.
Life Insurance: many lenders will require that you have a Life Insurance policy in effect before they will advance your mortgage loan funds (needed for closing).
These are most of the typical real estate closing costs which you will need to factor in when you buy a house or condo in the Province of Ontario.
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