What You Need to Know About Closing Costs on a Home
When buying or selling a home in Mississauga, the buying price that you negotiate is only a part of what the overall cost for a home is. There are quite a number of fees (closing fees) that ought to be put into consideration when determining the price of a sale. So the question is what and how much are closing costs on a home?
Closing Costs on a House for Buyers
→ Tax on Land Transfer
Almost all provinces and even major cities impose a tax on land transfer. It is usually calculated as a percentage of the purchase price of the home. The formula for calculating this is not constant, as it differs from city to city and from province to province. Therefore, the best thing for you to do is to use an online calculator. Let’s assume that you’re buying a condo worth $350,000 in Toronto, Ontario. With what the calculator tells you, anybody buying it would have a land transfer tax of $6,950. However, there would be a $4,000 rebate on the fees if you were a first-time home buyer.
→ Mortgage Costs
Although you won’t be charged a fee for setting up a mortgage or doing a mortgage-related appraisal by most banks, although some still do. If your bank is one that charges, bear in mind that you’ll be paying between $250 to $500. Also, if what you are putting down on the home you are buying is less than 20%, you will most likely have to pay mortgage default insurance. The less the down payment money, the more default insurance fees you will be charged. To aid your calculation, this is the sliding scale fee that the two largest mortgage default loan insurance providers charge.
80% to 85% of purchase price= 1.80% of mortgage + PST
85% to 90% of purchase price= 2.40% of mortgage + PST
90% to 95% of purchase price= 3.60% of mortgage + PST
More than 95%= 3.85% of purchase price + PST
It is important to note as well, that mortgage default insurance fees will be charged on amortization longer than twenty-five years, irrespective of whether or not you put more than 20% down on a house. In March 2017, default insurance premiums were increased while making the process much more complex. So, now the variances are based on types of savings, gifted or ‘non-traditional’ down payment, type of employment and so on to name just a few. My advice would be to contact a Mortgage Specialist for more information on this.
→ Adjustment Costs
When it’s sale time, the buyer’s lawyer must make sure that all local taxes are up-to-date on payment. If they are, then a Tax Certificate will be issued. From this tax certificate, any adjustment can be made. This usually requires that the buyer compensates the seller in advent of any prepaid taxes. But where they’re not up-to-date, the seller is required to get them paid them off from what is received through the sale. So be sure to remember that if the seller has prepaid property taxes and/or some more utilities for the year, on closing, the prepaid portion will be credited to them. Say, they paid their taxes by April, on closing, you should expect a huge adjustment cost! But once again, your lawyer will get all of these confirmed for you.
There are certain things that you will need to get all set up and organized while awaiting your move-in date. Some of them are:
- Home Insurance – A lot of people go with their auto provider. They get a discount that way.
- Utility set-up – Make sure you call the phone, gas and hydro company and let them know what your move-in date is, to ensure that your services are not disrupted.
- Canada Post – Make sure that you opt in for a change of address so that all your mail will be sent to your new house.
- A moving truck – Most moving trucks are usually busy during the weekends and even over-booked at the end of the month, so try to make your closing date fall mid-week and mid-month. That way, you will save yourself some money.
- Within a period of 10 business days of your moving, you have to go to Service Ontario to have a change of address done on your insurance and your license. This can also be done through Service Ontario’s on-line services.
Other Closing Costs for a Home that a Buyer Should Know About Include The Following:
- Legal Costs
- Title Insurance
Seller’s Closing Costs
→ Mortgage Discharge
If you choose to close your mortgage before it matures, you will need to pay a discharge fee and extra penalties. For variable rate mortgages, the penalties are three months’ worth of mortgage payments and a $200 to $600 discharge fee. But for fixed rate mortgages, the penalties can be much higher, so it is best that you call your lender to find out what you will need to pay in order to break your mortgage. Keep in mind; if what you are looking at is a high penalty in order to break your mortgage, it’s possible that you are able to transfer it to another property for a fee that is significantly smaller.
→ Realtor’s Commission
This is biggest fee you will have to pay as a seller, while this is also where you get the most value out of. In general, the average closing cost of real estate agent’s commission in Mississauga is 5%—2.5% per agent. Having said that, you can always try to negotiate, but this a lower commission rate, but this agreement must be reached before your home gets listed and sold. Remember that GST is also to be accounted.
→ Lawyer’s Fees
It is necessary that you have a lawyer that will discharge the property title and the mortgage, and also for verification that all prepaid expenses are given back to you and also, that utility and/or other services are paid in a timely and up-to-date fashion. For an uncomplicated transaction, you should expect that you’ll be paying between $500 and $1,500, plus disbursements.
As you know, I’m always available for a quick chat if you have any questions. Feel free to reach out to me at (647) 982-1477 or contact me through my website.