Closing costs in Ontario are an important part of your mortgage and home ownership budget, yet many buyers have not heard of them. You don’t want to be surprised when you go to your bank or broker’s office and discover that there are additional costs to cover on the day of taking ownership of your new home.

Closing costs can add up quickly, so we’re going to discuss them in this post so that you can understand what they are and not experience any unpleasant surprises when you’re ready to collect the keys to your new home.

Closing Costs Home Buyers Need to Know

Before the actual closing of the deal, costs can include the following.

A bank or lender will expect you to make a deposit or down payment on the property you wish to buy. This is usually five percent of the property purchase price. It must be paid within 24 hours of your offer acceptance. Next up is the property appraisal fee, which runs around $400 to $500 and is usually paid by the lender.

Banks and other lenders may impose a charge that you as a lender must pay to cover the mortgage interest for the period between when the mortgage is funded and when the mortgage term commences. This is called an interest adjustment.

Another closing cost is the home inspection fee. Of course, not everyone gets a home inspection, but it’s usually recommended and costs between $400 and $700, depending on what kind of inspection you request. The fee is due when the inspection takes place, or when the home inspection company bills you.

Closing Costs Vary, Depending on Where You Live

Closing costs may vary from city to city and municipality to municipality. Every province charges a certain percentage of the property purchase price (PPP) as a tax when land is transferred from one person to another. This is called a land transfer tax (LTT).

In Ontario, the LTT is calculated on a sliding scale where you pay 0.5 percent on the first $55,000 of the PPP, up to two percent on payments over $400,000. If you are a first-time buyer, there is some good news: you will be eligible for a refund of up to $2,000.

In Toronto, the LTT is most often the single biggest closing cost expense on most residential property purchases. Residents of Toronto are expected to pay an extra Municipal Land Transfer Tax to the tune of $5,725 for a $500,000 home. Again, first-time buyers get a bit of a break because they can apply for a rebate of up to $3,725.

Legal Fees as Part of Closing Costs

When you buy a residential property, you need a lawyer to perform a title search, review the offer to purchase, and register the mortgage and deed. A lawyer also reviews your mortgage contract, pays disbursements, and creates the closing documents. A lawyer’s fee for this kind of work runs between $1,000 and $2,000 and is part of the closing costs in Ontario.

Many times as a buyer you will be required to refund the seller for any overpayments made by the seller. These payments by the seller could include property maintenance fees or property taxes. This refund payment to a seller is called a closing adjustment.

Insurance is Classed as a Closing Cost in Ontario

In terms of insurance, fire insurance is mandatory for everyone who has a mortgage. You should also consider purchasing title insurance to protect against defects, fraud, and forgery.
The next insurance you will need is mortgage default insurance, sometimes called CMHC insurance, if your down payment is less than 20 percent. The insurance runs on a sliding scale and ranges from 0.5 percent to 2.75 percent.

Finally, if you are buying a condo as your new home, part of the closing costs in Ontario will include the purchase of a copy of the condo association’s estoppel certificate, which certifies things to be true at a given point in time. These items could include the condo fees, any maintenance, or any interest due on unpaid contributions.

No one wants to be surprised by all kinds of fees right when they are ready to get the keys to their new home. Let Northwood Mortgage help. Call our experienced mortgage agents today at 888 257 8130 for a no-fee consultation!