Understanding Your Closing Costs
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Understanding Your Closing Costs

In this article we will try to understand the Closing Costs associated with a Real Estate Transaction, often buyers especially the first time home buyers have questions around how these work and what they can put aside to ensure they are prepared.

The approach we will follow here is to break-up the Closing Costs into various components and explain them one-by-one, at the end, we will take an example calculation to give us a fair idea. Let’s start with our first and the biggest component of closing cost: LTT

Land Transfer Taxes – This is a provincial tax which government levies whenever property ownership changes. For first time home buyers, Ontario Government provides Land Transfer Tax Refund of up to a maximum of $4,000 (effective Jan 1st, 2017).  Generally, this rebate is claimed at the time of registration of the property, the lawyer takes care of this as part of registration. Here is a link for calculation of Land Transfer Tax of any property -> http://www.trebhome.com/buying/ltt_calculator/ltt_calculator.htm

Note: If the property is located in the City of Toronto there is an additional Toronto’s municipal land transfer tax.

Further details on how the LTT is calculated for various values,  Value of the Consideration (VC) is purchase price here –

For the Value of the Consideration (VC) LTT Formula
up to and including $55,000 VC × 0.005
above $55,000 and up to $250,000 (VC × 0.01) – $275
above $250,000, for property other than residential (VC × 0.015) – $1,525
above $250,000 up to $400,000, for residential property (VC × 0.015) – $1,525
for residential property above $400,000 (VC × 0.02) – $3,525

For details on first-time homebuyer land transfer tax rebate – Understanding Ontario Land Transfer Taxes

Title Insurance – This is an optional component and is recommended to cover any claims to the title of your property for any liens against the property, undischarged mortgages, title fraud etc. This generally varies from  $170 to $250 based on the purchase price of the property.

Registration Fees – This is the fees for registering the deed and mortgage with the provincial government, each document cost is $74.72; total fees assuming only 1 mortgage and the deed would come to $149.44.

Legal Fees and Disbursements – These are the legal costs which you would be incurring for the services taken from the lawyer and the search costs, execution of certificates, fees for couriers & certified cheques and Law Society Transaction levy etc. Set aside around $1200 for this and get a quote from the lawyer’s office you are dealing with for conclusive figure.

Closing Adjustments

Property Tax & Condo Fees Adjustments – These are the payments and amounts which seller has already given for the year and the buyer’s lawyer ensures that are given back to the seller, calculated based on the completion (closing) date of the transaction. This is the amount which was prepaid by the owner at the time of closing.

Interest Adjustments – This is the interest-only component of the mortgage payment calculated between the closing date and the first payment of a regular mortgage.

Utility Bill Adjustments – For any bills which are prepaid by the sellers, these are the adjustments which are done by the lawyer to reimburse accordingly.

Let’s take an example of a property with purchase price of $400,000 for the closing costs of a First time home buyer: considering the completion date is July 22 and Condo Fees is $245 per month prepaid by seller; we will also adjust for property taxes ($2500 per annum) considering they are prepaid by seller as well for adjustments.

Closing Costs Sample

Description Amount
Land Transfer Tax (minus rebate applicable if first time home buyer)$475.00
($4,475 - $4,000)
Title Insurance$200.00
Registration Fees (Deed & Mortgage with Province)$149.44
Legal Fees And Disbursements (will vary based on lawyer)$1200.00
Condominium Fees Adjustment$73.50
Property Tax Adjustment$1110.00
Totals3207.94

All the wishes!

Mudit