This weeks industry term which is used all the time, is the Closing Costs. What are they and what do they mean for your mortgage?
Closing Costs are legal and administrative fees that are payable by the buyer in a real estate transaction and are due prior to the transfer of the property title. These costs are usually payable to different parties in the transaction; therefore, the payments are handled by the lawyer that is ‘Closing’ the property. Prior to the closing date; the lawyer will supply a statement showing which Closing Costs are due and payable so that the purchaser can ensure to have the funds paid ahead of time; usually along with the down payment. It is important not to overlook the Closing Costs throughout the homebuying journey; even though they may be a small portion (usually between 1.5% and 4%) of the overall transaction; they are necessary to facilitate a smooth closing and the absence of them can risk the property closing; resulting on other fees!
Closing Costs differ based on many factors; such as location, property, mortgage type, mortgage conditions, property taxes and utilities paid etc. Tyler’s My Mortgage Toolbox App can be used to help estimate the closing costs for your particular transaction; further to this, he will be able to assist with a more accurate estimation when consider all aspects of the file.
Some of the most common Closing Costs are:
Land Transfer Tax (LTT) – Provinces may have a LTT payable whenever a property changes ownership. Ontario, for instance, has a tiered LTT based on the property value in an arm’s length transaction. It should be noted that the LTT is higher when purchasing a property in the City Of Toronto. First Time Homebuyers are able to take advantage of a LTT Rebate (up to $4,000) in order to make their first home purchase more affordable; the rebate is greater for purchases in the City of Toronto as well (up to an additional $4,475). Example – a home purchased in the Durham Region for $800,000 would be subject to a LTT of $12,475; or $8,475 for a First Time Home Buyer.
PST on Mortgage Default Insurance – If the mortgage is an insured mortgage (less than 20% down payment) then the mortgage default insurance premium is added onto the mortgage; however, the PST (8%) is payable upon closing.
Legal Fees and disbursements – These are the fees charged by your lawyer to handle the transaction on behalf of yourself and the lender for the preparation and recording of the legal documents as well as registration.
Title Insurance – Although this is not a mandatory cost in Ontario; almost every lender will require that Title Insurance is acquired for the property in order to protect against losses in the event of an ownership dispute. On top of the lender required Title Insurance; the purchaser is able to acquire additional insurance to protect themselves as well; this is recommended!
Prepaid taxes and utilities – If the seller of the property has already prepaid for property tax and some utilities; the portion for the amount not yet consumed will be reimbursed to the seller by the buyer on the closing date.
Other closing costs that may be payable may be specific to the mortgage (lender or broker fees), lender conditions (appraisal cost) or property (water tests, Estoppel Certificate, inspection).
As mentioned; Closing Costs are extremely important and mismanagement of the availability of these funds may lead to the purchase not closing in time; or at all! It is best to account for these funds separately from your down payment funds to ensure no issues will arise!
Download My Mortgage Toolbox App here to assist with the calculation of these; as well as other costs!
Check in next week for our next topic!
Published by Tyler Cowle!