Mortgage Closing Costs

Do not forget about them when allocating money for the down payment!

Closing costs are standard expenses associated with the purchase of your home and/or arranging a new mortgage. They are payable in addition to the actual purchase price and the downpayment. The exact list of all the necessary charges is presented to you by your lawyer on the closing date; however, this page can give you a common idea.

Before a transaction can close, it is vital that you understand and is prepared for the closing costs associated with the transaction. If you have saved 50K to buy a house and think, that you have 50K for down payment, you are wrong - part of that money (let's say, 7-10K as an example) may need to be paid for closing costs, so, in fact, a smaller amount is really available for the down payment... Failure to prepare for these costs has caused many transactions to be cancelled at the real estate lawyer's office because the borrower did not have the funds to close. The exact amount required by you on closing differs based on the type of transaction, but usually you need to have 1.5% to 2.5% of the purchase price set aside for closing costs.

Explanation of Closing Costs

Here is a brief explanation of these costs. Not all of them may apply to your specific situation, and there may be more that apply in your circumstance - talk with your lawyer who can provide a more realistic estimate for your situation, since he or she is the best resource for your closing costs.

Title Insurance
Typically costs between $200 and $300 (a onetime fee), depending on the type of policy, the property type and the value of the property. Title Insurance provides coverage for the title-related risks associated with real estate transactions and provides protection from losses caused by forgery, fraud, unknown title defects (title issues that prevent you from having clear ownership of the property), existing liens (e.g. the previous owner had unpaid debts from utilities, mortgages, property taxes or condominium charges secured against the property), claims of the previous owner 's heirs and current/former spouse, errors in surveys and public records, and other issues that can affect rights of ownership. Title insurance moves the risk associated with title from the homebuyer, the lending institution or the lawyer, to the title insurer. If there is a problem with title that only becomes known after closing, the title insurer may rectify the problem or compensate the policyholder.

HST of Mortgage Default Insurance
While the default insurance premium is typically included in the mortgage, the HST charged on this premium is not. When calculating the premium, note that there is HST of 13% in Ontario, payable at closing. Mortgage Default Insurance will compensate the lender if the borrower goes into default (normally by failing to make his or her mortgage payment). Usually required when the down payment is 20% or less..

Fire Insurance
All mortgage lenders will require a certificate of fire insurance to be in place from the time you take possession of the home (confirmation must be provided to the lawyer when you meet to sign mortgage documents). Not required for condos (because fire insurance is included in the monthly condo fees). The amount required is generally at least the amount of the mortgage or the replacement cost of the home. This cost can vary on the property size and extras being insured, as well as the insurance company and the municipality. The cost can vary anywhere from $250-$600 for most properties.

Content Insurance (NOT REQUIRED)
It will cover the cost of replacing the contents (furniture, personal belongings, etc.) in case of fire or other disaster. Even though it's not required by mortgage lenders, I suggest my clients to buy it to be protected.

Land Transfer Tax
If the transaction is a purchase of an existing home (i.e. not from a builder), the buyer must have funds for the land transfer tax wich can be calculated using Land Transfer Tax Calculator.

Appraisal Fee
The appraisal provides the lenders with a professional opinion of the market value of the property. While some lenders will waive the appraisal fee or reimburse the fee on closing, the typical charge ranges from $250 to $550. Though you may have to pay this fee before the transaction closes, it should be considered by you since it may reduce the amount available for closing costs.

Home Inspection Fee
A professional inspection of the home, top to bottom, is for your benefit, therefore, you absorbs the cost. A typical home inspection can cost anywhere from $300-$450, but they are well worth the investment. New home buyers may not worry about it, but a definite must for buyers purchasing properties older than 5 years. When hiring a home inspector, make sure the inspector has liability insurance, just in case a mistake is made.

Legal Fees
A lawyer or notary will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. Legal costs and disbursements will vary depending on whether the transaction is a purchase or a refinance or equity take-out. In Toronto and the area, it's normally about 1300 - 1400 on purchase and 600 - 800 on refinance.

Mortgage Application and Processing Fee
On a high-ratio insured mortgage (mortgages above 80% of the purchase price), the mortgage insurer charges a fee of $165-$185 for applying and processing the file, as well as appraising the property. On new homes, this fee drops to $75.


Once you are interested in obtaining a mortgage, then you most likely will also be interested in the help of an experienced real estate agent:

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