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Closing costs are the legal and administrative fees and disbursements associated with buying your home. Understanding each one will help you budget more accurately and lead to a more comfortable home-buying experience.
CMHC or Genworth insurance
A conventional mortgage is a loan for no more than 75% of the appraised value or purchase price of the property, whichever is less. The remaining amount required for a purchase (25%) comes from your resources and is referred to as the down payment. If you have to borrow more than 75% of the money you need, you'll be applying for what is called a high-ratio mortgage.
Here's how it works:
You must have at least a 5% down payment when you buy a home. Any purchase where the down payment is between 5% and 24% is considered a high-ratio mortgage, and the mortgage must be insured by the Canada Mortgage and Housing Corporation (CMHC) or Genworth. The insurer will charge a fee for this insurance. The amount of the fee will depend on the amount you are borrowing and the percentage of your own down payment. Typical fees range from 1.00% to 3.25% of the principal amount of your mortgage. This amount can be paid up front or added to the principal portion of your mortgage. A Mortgage Specialist can help you determine the exact amount.
Land transfer taxes
Most provinces levy a one-time tax when you buy a home (subject to change). The tax is based on a percentage of the purchase price of the property, and varies from province to province. In Ontario, for example, the rate is ½% on the first $55,000 of the purchase price, 1% on the next $195,000, 1.5% on the next $150,000 and 2% on the remainder.
Legal/notary fees
You should be represented by a lawyer or notary during the purchase and mortgaging of the property, and you are responsible for paying the lawyer's or notary's fees and disbursements.
Fire insurance
You are required by the mortgage lender to have fire insurance effective at the time you legally take possession of your new home. Some insurance companies may demand proof of a home inspection or may not insure certain types of dwellings. Make sure that you enlist your insurance agent early. |
