Mortgage Closing Costs

Closing costs and ongoing expenses

When budgeting for a new home, so much of the focus is on the down payment and mortgage rate that it’s easy to forget about closing costs. But the last thing you want is to find your dream home, only to realize that you can’t afford it because of costs you didn’t budget for.
Lenders generally recommend that homebuyers budget for at least 1.5 % of the purchase price for closing costs. This should be considered the minimum, however. A safer approach is to put aside 5% (unless it’s a new build it could be more) of the purchase price for closing costs (e.g. $10,000 for a $200,000 property).
And it doesn’t end with closing costs. Once you have successfully purchased your home, you’ll face ongoing expenses unique to home ownership. Below you’ll find a good overview of both types of costs.

Closing costs:

1. Down payment – While this is not a closing cost, you’ll need to have at least 5% of the purchase price before you start home shopping. This is the minimum down payment required in Canada for home priced up to $500,000.
   Any portion between $500,000 and $999,999.99 will require a 10% down payment. If the property you’re purchasing is more than $1 million, a minimum down payment of 20% is required.
2. PST on mortgage insurance – For down payments of less than 20 percent, homebuyers are generally required to buy mortgage insurance (a.k.a., CMHC default insurance). In Ontario, Saskatchewan, Manitoba and Quebec you pay provincial tax on the mortgage insurance premium. This tax must be paid when you close your purchase.
3. Land transfer tax – This tax is levied on properties purchased in all provinces except Alberta and Saskatchewan. It’s generally a percentage of the property price, although exact methodology depends on where you live.
   Use our Land Transfer Tax Calculator to calculate this cost for homes in your area.
4. Legal fees – A lawyer’s services are required to execute the mortgage documents and complete the mortgage transaction. Budget at least $1500 to $2000 for this.
5. Title insurance – This insurance is required by most lenders before they’ll close your mortgage. It provides coverage for losses related to title fraud, survey or zoning issues and challenges to the ownership of your home. Budget at least $300 for this, or more if it’s a large mortgage or secured line of credit on an expensive property.

6. Appraisal – If the mortgage is not default insured, most lenders will want an in-person valuation of the property to confirm its market value. Budget at least $400 for this as well, and more if the property is remote or is valued over $1 million.
7. Home inspection – A home inspection assesses the condition of the property and identifies potential maintenance and structural issues. While it’s not mandatory, it is recommended prior to completing a purchase agreement. It can help avoid unexpected costs down the road related to things like faulty
   foundations, mold and structural issues. It’s generally recommended you budget around $350 for this, though home inspection costs can vary.
8. Status certificate – Also known as an estoppel certificate, this document is required by lenders for condominium purchases. It is a legally binding document from the condominium corporation that outlines the building’s financial and legal health. It also contains the obligations and rights of the condo board and condo owner. The cost is around $100.

Other cost that may apply:

Interest Adjustments
The interest adjustment is the amount of interest accrued between your closing day and the day your first mortgage payment comes out. Buyers may encounter this extra charge when their first mortgage payment doesn’t come out until after the mortgage closing date, which means there is some time in between both events where interest begins to accrue.
If you purchased a home for $250,000 with a mortgage rate of 2.89%, that would equal $7,225 in total interest. You would then divide that by the number of days in a year (365) to get a rate of $19.80 per day. You can then multiply that daily rate by the number of days between both transactions, and you’ll get the total amount of interest adjustments you owe. While it likely won’t be a large number, it’ll still add more dollars to your closing costs so it’s important to know in advance if these adjustments apply to you.

Ongoing expenses:

• Property taxes – Annual property taxes are calculated as a percentage of the assessed value of your property. These taxes can be incorporated into your mortgage payments, or paid as a separate bill. They are paid monthly, quarterly, semi-annually or annually depending on your municipality and whether the lender collects the taxes from you.
• Home insurance – Having adequate home insurance is a necessity for mortgage financing. It protects you against fire, floods and other hazards that could damage your property. 
• Condo fees (if applicable) – Maintenance fees for condominiums depend on the size of your unit, building amenities, and the location. Fortunately, information on condo fees is publicly available before you begin the homebuying process. Be sure to do your research before you buy.

Tip:

• Get a cash back mortgage, or a mortgage that offers a cash rebate, to help cover closing costs.

• Make a down payment of 20% or more to avoid paying mortgage default insurance.
  Please note that the dollar amount provided is only an estimate for closing costs. If you need further assistance, feel free to ask!