Purchasing a home can be stressful, especially the first time. That’s because it’s often the largest and most important financial transaction in most individuals’ financial portfolios. There are a lot of administrative details when it comes to closing a real estate purchase, and of course, fees too. The good news is that homebuyers avoid surprise costs when they engage a mortgage broker with experience. An outstanding mortgage professional will guide buyers through all the financial considerations of their real estate purchase.
This article looks at the expenses we prepare homebuyers for on their closing day. Because these can be substantial dollar amounts we account for them early in the mortgage process for a smooth and successful finish. Let’s start with: what are closing costs?
What are closing costs?
Above and beyond the downpayment value, homebuyers must come up with additional funds on the day of closing. These other expenses require payment in full to complete the home purchase successfully. That’s why we prepare buyers for them early in the mortgage process to avoid any issues at closing.
Downpayment
Consumers do not usually overlook this expenditure, but the payment is significant enough to be included in this list. Homebuyers must put a minimum of 5% of the purchase price down. Any amount equal to or over 20% eliminates the need for CMHC mortgage insurance.
Legal fees
Lawyers are heavily involved in the administration of new home purchases. Their fees usually cover preparing documents, coordinating necessary disbursements, and registering the mortgage with the land titles office. These fees range, most typically, between $2,000 – $2,500 and can be higher, depending on the cost of the home. It’s important to note that if you are selling and purchasing a home, you can expect to have legal fees for both the sale and the purchase.
Land transfer tax
This provincially-mandated expense is calculated as a percentage of the home purchase price. In other words, the more expensive the home, the higher this fee will be.
The Ontario government offers a financial rebate for first-time homebuyers regarding land transfer tax. This incentive reduces the financial burden for those looking to enter the residential real estate market. First-time homebuyers in Ontario are eligible for a maximum rebate of up to $4K. This rebate is only valid for those purchasing a home for $366,000 or less. Ontario consumers who have already purchased residential real estate or are purchasing a home that costs more than $366,000 must pay the tax.
Current land transfer tax rates in Ontario are as follows:
| Purchase Price | Tax percentage |
| $250,000.01 to $400,000.00 | 1.5% |
| $400,000.01 to $2,000,000.00 | 2.0% |
| Over $2,000,000 | 2.5% |
Provincial sales tax
(on CMHC premium)
As noted above, homebuyers putting less than 20% of the purchase price down must purchase mortgage insurance. This is usually purchased through CMHC, Genworth or Canada Guaranty. The insurance premium is often rolled into the mortgage financing, but the sales tax associated with that premium is not. In Ontario, this amounts to 8% of the insurance total.
Property taxes
If the current seller has already paid property taxes to the municipality, they require reimbursement from the new buyer. This closing cost is dependent on the day/time of year the new buyer moves in. A pro-rated dollar amount will be calculated and owed by the new buyer, should they occupy the home for a period where taxes have already been paid in advance.
Other closing cost considerations
Depending on the type of property and the conditions of sale, the following costs could also arise during the closing process:
- Home inspection fee
- Appraisal fee
- Well water testing for rural properties
- Non-resident speculation tax
- Interest adjustment
- HST for new construction housing
Broker benefits to mortgage closing
Your home purchase is an important financial transaction that deserves thoughtful attention. Engaging a mortgage professional to guide the process is the best way to navigate your next mortgage. We take pride in educating our clients and preparing them for every step through closing and beyond. This avoids stressful surprises and ensures success.
Questions about your mortgage? Reach out to our team. We’re always happy to help!
