Understanding Mortgage Closing Costs
You’ve purchased your new home, secured a mortgage and are ready to close. But are you prepared for closing costs? Closing costs are often overlooked – especially by first-time homebuyers.
You don’t want to be financially unprepared to cover the full costs of closing. As a general rule of thumb, Capital 360 Mortgage recommends setting aside approximately 1.5% of your purchase price to cover all the costs you’ll face at closing.
Costs before closing
Even before closing your deal, there will be a number of costs to be covered. These include:
- Your down payment or deposit: Minimum 5% of your purchase price
- Property appraisal: Usually paid by the borrower, this can add up to $800 in costs.
- Home Inspection: Some resales will require a home inspection. This may add up to $700 in costs, depending on the size and state of the property you are purchasing
Other costs to consider
There are a number of other costs to consider when purchasing a property. These include:
Premiums for high ratio insurance
If you’ve purchased with less than 20% down, you will be required to purchase mortgage default insurance. This usually ranges from 0.60 % to 4.00 % of your purchase price.
Legal fees and disbursements
Every property purchase must be reviewed and handled by a lawyer. A real estate lawyer will do everything from review the Offer to Purchase, register your mortgage and deed, review your mortgage contract, pay disbursements, prepare closing documents and more. These services may cost between $1,000 and $2,000.
Closing adjustments
When purchasing a property, you may also be responsible for closing adjustments. Closing adjustments are payments to the seller, refunding them for any existing payments they may have made on property taxes, condo maintenance fees, etc.
Interest adjustment (IA)
An interest adjustment is a payment to the lender to cover the time between funding of your mortgage, and the start of your mortgage term.
Home insurance
All mortgages require fire home insurance. Your premium will be based on the value of your property, or the amount of your mortgage.
Provincial sales tax (HST/PST on high-ratio insurance)
If you are required to have Mortgage Default Insurance on your Mortgage (ie. you have a High-Ratio Mortgage) you will need to pay an insurance premium to the insurance provider. This premium is often added to the Mortgage balance on closing. However, certain Provinces charge Provincial Sales Tax (PST) on Mortgage Default Insurance premiums. These taxes cannot be included in your Mortgage balance and need to be paid by you on the Closing Date (included in your Closing Costs).
The provinces that currently require this, and the tax rate they charge, are Ontario (8%), Quebec (9%) and Saskatchewan (6%). So, if you are buying in one of these provinces be sure to factor in that tax as you prepare yourself for closing costs.
Title insurance
Title insurance protects homeowners against fraud, forgery, title defects and other issues that could arise. Prices vary, but for a home worth half a million dollars, it may cost up to $400.
Ontario Land Transfer Tax (LTT):
In Toronto, LTT is usually the largest closing expense on home purchases. It is calculated on a sliding scale where the purchaser pays the following:
- amounts up to and including $55,000: 0.5%
- amounts exceeding $55,000, up to and including $250,000: 1.0%
- amounts exceeding $250,000, up to and including $400,000: 1.5%
- amounts exceeding $400,000: 2.0%
- amounts exceeding $2,000,000, where the land contains one or two single family residences: 2.5%
Toronto Land Transfer Tax
If you purchase a property in Toronto, you will also be required to pay a Municipal Land Transfer Tax. On a $500,000 home, this amounts to $6,4765,725. Again, first-time homebuyers can claim a $4,475 rebate.
Get the full picture with an Capital 360 Mortgage Agent
As you can see, closing costs are definitely something to consider when purchasing a property. Call us at 647-601-7728, we’d be happy to help you prepare for a successful closing.