Closing costs, ranging from 1.5 to 4%1 of selling price, are the legal and administrative costs you will need to pay when your house closes. In addition to closing costs, there are other expenses and/or events that may require a cash outlay before, on or after your house closes.
- Land Transfer Tax. Calculated as a percentage of the purchase price of your home, all provinces have a Land Transfer Tax (LTT) payable on closing, with the amount varying in each province. Some cities, such as Toronto, also have a municipal LTT.
Ontario Land Transfer Tax Calculator
- Legal Fees and Disbursements. You can expect to incur a minimum of $500 (plus GST/HST) on legal fees, which account for the preparation and recording of official documents.
- Title Insurance. Today, most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and costs $100 - $300.
- CMHC insurance. Though CMHC insurance itself is financed through the mortgage, PST on the insurance must be paid in cash at the time of close.
- Appraisal Fee. An appraisal, which is an estimate on the value of your home, is often covered by your mortgage lender. An appraisal is performed to certify the lender of the resale value of the home in the case you default on the mortgage. The cost is usually between $250 and $350.
Other costs to consider
- Property Insurance. Property insurance, which covers the cost of replacing your home and its contents, must be in place on closing day. This insurance is often paid in monthly or annual premiums.
- Prepaid Utility Bills. You may need to reimburse the previous owner of your property for prepaid costs such as property taxes, utilities and so forth.
- Property taxes. Property tax is calculated as a percentage of your home value, varies by municipality and must be paid each year. The residential property tax rate in Toronto for example is 0.83%, and on a $400,000 home, would be equal to $3,320 per year. You may need to reimburse the previous property owner if he/she has already paid property taxes for the full year. You are also given the option to set-up an automatic payment plan with you lender. Your lender will set up an account for you, collect an additional $277 per month ($3,320 / 12 months) and then pay property taxes on your behalf.
Closing Day is the day you finally take legal possession of your home. Transferring down payment funds, especially from your RRSP can take time, and should be done several days before close.
On closing date, the following events will take place:
- Your lender will provide the mortgage funds to your lawyer/notary.
- You must provide, your down payment less the deposit, to your lawyer/notary along with the closing costs.
- Your lawyer/notary pays the previous owner, registers the home in your name, and gives you the deed and keys to your new home.
Congratulations! You are now ready to move in.