The Costs in Canada

Buying, selling, or refinancing your home can be an overwhelming process. No matter which transaction you are currently facing, they all come with closing costs. Whether you are buying a piece of Toronto real estate or selling your cottage in Muskoka, it is important to understand these costs to be fully prepared. My name is Britt Huggins, I’m a Toronto real estate agent on the SO&Co. Team here to break down the costs to buy, sell or refinance your home. Let’s get to it!

Defining “Closing Costs”

What exactly are closing costs? Closing costs are expenses and fees that require payment after a real estate transaction is finalized. There are a wide variety of closing costs depending on which transaction you are completing. For those who are buying, closing costs typically range between 1.5% to 4% of the home’s purchase price. For those refinancing, you may pay a few thousand dollars which can often be rolled into your mortgage so you won’t have to pay directly.

Most Common Closing Costs For Sellers

For those who are planning on selling their home, the following are the most common closing costs that may incur:

• Mortgage Discharge Fees: Possible cost of $200-$500. Your lender will charge this in order to close out your mortgage.
• Mortgage Pre-Payment Charges: Possible cost of 3 months of interest or the IRD (Interest Rate Differential). You could be charged pre-payment penalties depending on when your mortgage term was supposed to be up.
• Legal Fees: Possible cost of $1,000-$3,000+. Legal fees are paid to the real estate lawyer or notary. They will clear any liens or charges against the title and confirm the legal ownership of the property.
• Real Estate Commissions: Possible cost between 2%-5% of the sale price plus tax. The commission for both the buyer and seller’s realtor is typically paid by the seller.
• Repairs and Maintenance: Before the sale, any repairs or maintenance that were agreed upon must be completed and paid for by the seller.

Most Common Closing Costs For Buyers

If you are planning on purchasing a new home, below are the common closing costs that may incur:

• Legal Fees: Possible cost of $1,500-$3,000+. These are fees payable to your real estate lawyer or notary who was responsible for the legal aspects of the purchase. Title searches, document prep, and title registration are a few examples of what these fees may include.
• Land Transfer Tax: Possible cost of a couple hundred to thousands of dollars. This tax is dependent upon your municipality or province. The purchase price of the property is what the land transfer tax is calculated upon.
• Home Inspection: Possible cost of $500-$800. While a home inspection is optional, it may be of interest to buyers to determine if there are any issues with the property they are purchasing.
• Property Appraisal: Possible cost of $300-$600. Some mortgage companies may require a property appraisal in order to establish a fair market value.
• Title Insurance: Possible cost of $150-$500. Lenders typically require title insurance to protect buyers against any future issues with the property’s title. It is a one-time cost at the homeowner’s expense.
• Mortgage Default Insurance: Possible costs of between 2.8%-4% of the mortgage. For those who pay less than 20% for their down payment, mortgage default insurance is required. This cost can be added to your mortgage total. For those in the provinces of Ontario, Quebec, and Saskatchewan, a provincial sales tax is also charged on this insurance.
• Property Tax Adjustment: The time of year that you purchase your new home will determine if any property tax adjustments are required. If property taxes have already been paid, you’ll need to reimburse the seller. If property taxes have not been paid for the year, it’s possible to receive a credit from the seller.

Most Common Closing Costs for Refinancing

When it comes time to refinance your home, these are the most common closing costs that may incur:

• Mortgage Pre-Payment Charges: Possible cost of three months of interest or the IRD (Interest Rate Differential). These charges occur if you are breaking your existing mortgage term.
• Mortgage Discharge Fees: Possible cost of $200 to $500. These are fees in which the lender charges in order to close out your existing mortgage.
• Title Insurance: Possible cost of $150-$500+. This will protect you against any issues related to the title during refinancing. Some lenders may require this.
• Appraisal Fees: Possible cost of $300-$600+. To determine the fair market value, your lender will require an appraisal of your home.
• Legal Fees: Possible cost of $1,000-$3,000+. These fees are for your real estate lawyer or notary and they cover registering your new mortgage as well as verifying the legal ownership.

We understand that buying, selling, or refinancing your home can be a daunting process. We hope that the above information provides clarity on the potential closing costs so that you aren’t blindsided. If you want more information or need assistance with connecting to an expert mortgage broker or lawyer, then contact your favourite Toronto real estate agent today!