Closing costs in Ontario typically range from 1.5% to 4% of the purchase price, encompass the legal and administrative expenses associated with finalizing the sale of your home. Beyond these standard closing costs, there are additional expenses and events that may necessitate a financial commitment before, during, or after the closing of your house. We will provide a comprehensive breakdown of these details to ensure that any unforeseen costs are transparent and do not catch you off guard.
Upfront expenses essential prior to the finalization of your mortgage
Down-Payment:
The down payment is the gap between the property's selling price and the borrowed amount for its purchase. The deposit given with the offer is subtracted from the down payment. For instance, if the selling price is $600,000, the offer's deposit is $20,000, and the mortgage loan is $540,000, the remaining down payment would be $40,000.
Home Insurance:
You'll need property insurance covering the replacement costs of your home and its contents by the closing day. Typically, this insurance is paid through monthly or annual premiums.
Prepaid Utilities:
It's possible that you might owe the previous property owner for prepaid expenses like utilities. This may need to be settled at the time of closing.
Property Taxes:
Property taxes, calculated as a percentage of your home's value, vary by municipality and are an annual expense. If the previous owner has already paid property taxes for the entire year, you might need to reimburse them. Alternatively, you can opt for an automatic payment plan through your lender, where they collect a monthly amount (e.g., $277 for $3,320 annually) and handle the property tax payments on your behalf. While not obligatory, some homeowners find this service beneficial for budgeting purposes.
Legal Fees and Disbursements:
Anticipate a minimum expenditure of $1200 - $1500 (plus GST/HST) for legal fees when engaging a residential real estate lawyer. These fees cover the preparation and recording of official documents which include conducting a title search on the property, registering the property in the buyer's name, financial disbursements, and arranging title insurance.
Land Transfer Tax (LTT):
It is calculated as a percentage of the purchase price of your home and is due upon closing. There are specific marginal tax rates applied to each portion of your home’s value:
0.5% for the first $55,000
1.0% for the amount from $55,000 to $250,000
1.5% for the amount from $250,000 to $400,000
2.0% for the amount from $400,000 to $2,000,000
2.5% for amounts over $2,000,000
Apply the provided rates in the calculations. For instance, when acquiring a property for $500,000, the breakdown is as follows:
First $55,000: 55,000 x 0.5% = $275
$55,000 to $250,000: 195,000 x 1.0% = $1,950
$250,000 to $400,000: 150,000 x 1.5% = $2,250
$400,000 to $500,000: 100,000 x 2.0% = $2,000
Summing up each tax amount, in this example, you would pay $6,475 in taxes for your $500,000 property in Ontario.
Interest Adjustment:
The interest adjustment is the sum of interest that accumulates between the closing day and the date of the initial mortgage payment.
PST on Mortgage Default Insurance:
When acquiring a home with a down payment of less than 20%, obtaining mortgage default insurance, often known as CMHC insurance, is mandatory. This insurance serves to protect the lender in the event that the borrower fails to meet the loan obligations. While the cost of mortgage default insurance is typically included in the mortgage financing, the Provincial Sales Tax (PST) on the insurance must be paid in cash at the time of closing.
Have more questions? Email me at info@leighannstapleton.com
The content provided is informational and should not be considered as financial or legal advice. It is not a substitute for seeking professional guidance from qualified financial or legal experts.
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