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A Guide to Closing Costs in Ontario
Whether you are a first-time home buyer or buying your next home, closing costs are something that everyone has to prepare to pay when purchasing a house or a property. A few specific vendors generally take up these costs. The exact costs will vary depending on region, type of property, value of the property and the professional fees and norms in the area you are buying in. In Ontario, the average closing costs on a property range from 1.5% to 4%, depending on a few factors. This variance means that if you are purchasing a home or property for $500,000, you should expect to pay closing costs between $7,500 and $20,000. So what are closing costs, how much are closing costs and why do you need to know about them?
What are closing costs?
Closing costs are the costs associated with the purchase of a property or home that are not included in the mortgage or down payment. These costs are not included in any of the banking transactions and instead are incurred as part of the process to close the property’s sale in question and need to be paid. As these costs are part of the overall home buying process, lenders will want to see at least 3-4% put aside to cover these costs in your bank account at the time of signing for your mortgage. These funds can be from outside sources such as parents or friends, but you will need a paper trail to prove where the funds came from before moving forward with a lender. Further to this, these costs will generally be billed to you from the real estate lawyer you use to complete the property’s sale, but depending on your specific lawyer, this may differ. We will go into greater detail about the particular closing costs that you will incur on a purchase down below. So, let’s jump into it, starting with land transfer tax and some specifics around land transfer tax in Toronto.
Types of closing costs in Ontario
Here are the typical closing costs that you will see on your bill from a real estate lawyer or part of the overall purchasing process here in Ontario. Note that your specific fees will vary, but expect to pay up to 4% of your purchase price in real estate fees, otherwise called closing fees, upon closing on your home purchase.
Land Transfer Tax
Here in Ontario, all homes bought in the province are subject to Ontario land transfer tax. The tax, which is a provincial tax, is due to the government when the property’s deed is registered. For those who are buying a property in Toronto, an additional Toronto land transfer tax has to be paid to the government at the same time. Generally, the land transfer tax is the most significant chunk of your closing costs. The final costs have to do with the purchase price, the property’s size, and the location. If you are a first-time homebuyer, you may be eligible for an exemption. More can be found on our land transfer tax calculator.
The current Ontario land transfer tax is as follows:
| Purchase Price | Land Transfer Tax |
|---|---|
| On the first $55,000 | 0.5% |
| Between $55,000.01 to $250,000 | 1.0% |
| Between $250,000.01 to $400,000 | 1.5% |
| Between $400,000.01 to $2,000,000 | 2.0% |
| Anything over $2,000,000 | 2.5% |
Toronto Land Transfer Tax
As we note above, those buying a property in Toronto, Ontario have an additional municipal land transfer tax to pay to the government. Like the provincial land transfer tax, the Toronto version does have a built-in rebate for first time home buyers, and you can find out more on our land transfer tax page here.
The current Toronto land transfer tax is as follows:
| Purchase Price | Land Transfer Tax |
|---|---|
| On the first $55,000 | 0.5% |
| Between $55,000.01 to $250,000 | 1.0% |
| Between $250,000.01 to $400,000 | 1.5% |
| Between $400,000.01 to $2,000,000 | 2.0% |
| Anything over $2,000,000 | 2.5% |
Real Estate Lawyer
Real estate lawyer costs are generally standardized based on your location. If you are working with a real estate agent or a mortgage broker, chances are they will suggest a real estate lawyer assist you in the process. Real estate lawyers do a fair amount of paperwork and work with the seller’s lawyer to confirm the deed’s transfer, handle the movement of money between the parties, and ensure that everything is up to real estate law standards when you are buying a home. Most real estate lawyers will meet with you to review the various document that you will need to sign and run through the process with you either virtually or in-person.
Residential real estate deals are run of the mill transactions. The vast majority of the legal fees deal with the various Government registration fees and routine paperwork to ensure a smooth transition. You should expect legal costs to run between $1000 to $3000. The legal fees may or may not include a number of the closing costs that are listed below. The exact legal fees will depend on the lawyer and how much work is required to complete the transaction.
Title Insurance
Title insurance policies are designed to protect a buyer from unknown defects in the title of a property. These defects may include fraud with the title, title forgery or even title flaws. Although not a mandatory closing cost, many buyers err on the side of caution and purchase title insurance through their real estate lawyer. Fees for this service normally run around $1000, including a Compliance letter and an up-to-date land survey of the property in question.
Interest Adjustment
Interest adjustments are only applicable if you are selling and transferring a mortgage to a new property. This adjustment by your lender is due to a potential change to your mortgage payment day. Thus the lender will need to adjust the payment on the backend. Generally, this charge is around $300, but it will depend on your specific lender and your current monthly payment or biweekly payment. It is best to contact your lender directly to know how much this fee could be.
Statement of Adjustments
In some circumstances, sellers have pre-paid for services or taxes that will need to be reimbursed by the buyer. This could include things such as property tax, utility fees, condo fees, or special adjustments. Typically, a seller will provide a statement of adjustments which consists of all pre-paid services for the buyer to reimburse them at closing.
GST/HST
If you are purchasing a new home, you will need to pay HST on the total cost of the home. However, here in Ontario, there is a first-time home buyers rebate on HST. As you probably know, HST in Ontario is 13%, which can add up to a home in the hundreds of thousands of dollars. The province introduced an HST rebate program which can provide new home buyers with a maximum of $24,000 back in rebates.
PST on CMHC Insurance
If you are paying less than 20% on your down payment, you will need to purchase mortgage default insurance, otherwise known as CMHC insurance. Part of the estimated fees to do with closing expenses is payment of the PST on the total premium that CMHC will charge you over the loan. Here in Ontario, that means for any mortgage default insurance purchased in the province, expect to pay 8% of your premiums for your closing costs.
Registration Fees
There are a couple of smaller fees that must be paid as part of your legal fees. This includes registration costs of the transfer and the mortgage as well as the Stewart Assyst Charge. These fees are all part of government registration fee structure and are customarily billed to you by your real estate lawyer.
New Home Warranty
In Ontario, new home builders must purchase a warranty through the Tarion Corporation that is valid for 365 days. This warranty is often included in the buyer’s cost, but some builders charge the premium back to the buyer after the home has been completed. You will need to clarify with your specific builder on their policies, but it is a meaningful conversation to have around your time of purchase.
Need to know around closing costs
In this section, we will touch on things that are not necessarily part of closing costs but could be good to know when you are about to close.
Deposit and your down payment
Once you secure a property or home for purchase, you will generally provide a deposit to the seller’s realtor. This deposit can be anywhere from $1,000 and even up to $100,000, but it is part of closing the deal. You will write a cheque and drop-off that cheque at the real estate agent’s office. Before closing day, you will wire transfer the remaining down payment to your real estate lawyer. On closing day, your lawyer will work with the seller’s lawyer to transfer the money, and once all the paperwork is done, your realtor will provide you with the keys to your new home. You will want to photocopy the deposit cheque and get a receipt for the money transfer to have a record if anything goes wrong. It usually does not but nice to have that back-up.
Status Certificate
For condo buyers, a status certificate is necessary to provide details of the condo’s financial and legal affairs and detail any special assessment fees that are still outstanding. This certificate is specific to condos and is one way to ensure that you are not surprised by a thousand dollar assessment fee a week after the close of your sale.
Home Insurance
Upon purchasing a new home, buyers need to provide proof of home insurance to the lender that will start on closing day. Although not an official closing cost, new home buyers need to be aware of the additional costs and the extra steps that you will need to complete to ensure your insurance is in place. Most insurance companies can work with the lender or your mortgage broker to provide all the necessary documentation to secure your mortgage. They will need to go over the insurance details with you either virtually or over the phone. From water and fire coverage to simple deductibles, home insurance is necessary for the home buying process.
Property Tax
Property tax is one of those closing costs that will depend on the city you are closing in, the type of mortgage and the lender you are using. Cities have the option of when to tax property owners, and generally, you will see either quarterly or twice a year tax periods. Depending on your lender, you may have the option to include your tax payments in your mortgage payment. However, if you have an insured mortgage, you must include your property taxes in your monthly mortgage payment. If you have an uninsured mortgage, you have the option. Make sure to check with the city you are moving to about the property you are buying, and ensure that the account is not in arrears and that you have not missed a payment due to your closing date. If this is the case, you might have to pre-pay or ensure the seller pays the tax bill before you take possession.