Mortgage vs. HELOC
When you’re looking for properties so much of the focus is on finding a suitable home that you can often forget about the accompanying closing costs that go hand in hand with home ownership. The last thing you want is to find the home of your dreams and then figure out that you can’t afford it due to incurring closing costs which you didn’t budget for. Many will say that you should have at least 1.5% of the purchase price budgeted for closing costs, however this is the minimum. In addition, purchasing your first home will expose you to new ongoing costs unique to home ownership. Below we will examine both types of costs:
Down payment – While this is not a closing cost it is crucial that you have at least 5% of the purchase price saved before you start shopping around for a home. 5% is the minimum down payment required in Canada.
PST on Mortgage Insurance (if applicable) - In Ontario, Manitoba and Quebec you must may provincial tax (PST) on the mortgage insurance premium (if the down payment is less than 20%). This amount must be paid up front and cannot be added to the mortgage amount like the mortgage insurance premium. The tax is 8% in Manitoba and Ontario and 9.975% in Quebec.
Land Transfer Tax - Tax levied for property purchases in all provinces except for Alberta and Saskatchewan, which charge other fees instead. It is generally calculated as a percentage of the property price. Use the Rates.ca Land Transfer Tax Calculator to figure out this cost.
Lawyer Fees - A lawyer’s services are needed to execute the mortgage documents and complete the mortgage transaction. You can use $1,000 for your budget if you’re not sure about the exact cost.
Title Insurance - Insurance required by many lenders in order to obtain a mortgage which protects the homeowner from challenges and/or problems with their ownership of the property. You can use $300 for your budget if you’re not sure about the exact cost.
Appraisal - A cost assessment of the property to confirm market value which may be required when obtaining a mortgage. You can use $300 for your budget if you’re not sure about the exact cost.
Home Inspection - A home inspection helps figure out whether there are any defects with the property and the type of renovations which may be required. While it’s not mandatory, paying for a home inspection is often recommended prior to executing the purchase agreement. You can use $350 for your budget if you’re not sure about the exact cost.
Estoppel Certificate (if applicable) - A document required only for condominium purchases which has many important disclosures pertaining to the condominium building. The cost is usually around $100.
Property Taxes - Taxes charged by the municipality on your property. Property taxes can be added to your mortgage payment by your lender.
Home Insurance - Having adequate home insurance which protects your property against fire, floods, etc. is a condition for mortgage financing. You can use $40/month for your budget if you’re not sure about the exact cost.
Condo Fees (if applicable) – Maintenance fees for condominium vary by building and tend to be higher the larger the property. Information on condo fees is publicly available.