Before purchasing a new home or selling your home it's recommended that you find out the additional costs that will potentially occur. The actual purchase price on a house listing is only a small part of the ultimate part of buying or selling it. Whenever a house changes ownership, there are a number of associated fees--some can amount to thousands of dollars. Therefore, this can affect the final price of the transaction, whether you're buying a new home or selling your old one. Here are some of the potential additional costs that may occur:
For Buyers: Land Transfer Tax
Many provinces (and major cities) across Canada levy a land transfer tax (sometimes called a property purchase tax) that is calculated as a percentage of the price. The formula varies from province to province and from city to city; for specifics, see the website relocate-canada.com for a list of land transfer tax rates for most Canadian provinces, consult the municipal/provincial government website for your region, or ask your lawyer or agent.
As an example, in Ontario, the Land Transfer Tax is calculated as follows:
on the first $55,000: 0.5%
from $50,000 to $250,000: 1%
from $250,000 to $400,000: 1.5%
over $400,000: 2%
Adjustment costs are prepaid costs by the vendor that are reimbursed when the buyer takes possession of the home. These may include property taxes; prepaid water, hydro or gas charges; law care service contracts etc. With metered services such as hydro, gas, or water, the meters are read on the day the house changes hands, to enable you (and the utility company) to verify how much the buyer and seller each owe or are owed. The exception is heating oil; it is standard for the seller to top up the tank at the time of sale, and have the buyer pay for one full tank.
Many banks no longer charge a fee to set up a mortgage or do a mortgage related appraisal, but it is worthwhile to verify this when you are shopping around for a mortgage.
If you are borrowing more than 80% of the purchase price of your home, you will need to obtain mortgage insurance from the Canada Mortgage and Housing Corporation. The CMHC's scale is as follows:
80-85% of purchase price: 1.75% of mortgage plus PST
85-90%: 2% plus PST
90-95%: 2.75% plus PST
over 95%: 3.1% plus PST
Mortgage insurance also applies to extended-amortization (over 25 years). For every extra five years of an amortization period, the premium is increased by 0.2%. The maximum amortization you can obtain is 35 years. If you have decided to arrange your mortgage through a mortgage broker, you may be charged finder's fees as well; typically the lender pays this fee to the broker, but if you are considered a high-risk mortgagee, it may apply to you as well.
All mortgage companies require you to carry home insurance, and if you ever have a fire or major theft, you'll be grateful you invested in it. The cost varies depending on your coverage and the company you insure with; just as with car insurance, it's worth shopping around for the best price. Some companies may offer discounts if you insure both your home and car with them.
There are many legal costs associated with buying and selling a home but are all necessary and can only be processed by a lawyer. However, by law the maximum a lawyer can charge for their services is 1% of the purchase price or $1,200, plus GST and disbursement costs. The lawyer will generate the following searches and documents for you:
-Title Search, which verifies that the vendor legally owns the property and can sell it;
-Searches with the utilities, tax departments and building departments to verify that there are no liens on the property;
-Registering the title deed and mortgage;
-In the case of a rural property, septic tank and potable water searches.
Title insurance is not mandatory, but most lawyers recommend it to protect you against mortgage fraud, and identity theft.
The costs associated with the sale of a home are not quite as complicated as for buyers, but they can be just as significant.
The big fee sellers are required to pay is the commission fee, for both your own and the buyer's realtors. Generally, the total cost is 5% (2.5% for each agent), but you can sometimes negotiate a lower rate. GST is added to this.
You will need a lawyer when you sell, to discharge the title and mortgage, verify that all prepaid expenses are returned and utilities and other services cleared, and to handle the actual transaction.
If you have a "closed" mortgage an sell your home before the mortgage matures, there may be penalties and discharge fees, which can amount to as much as three months worth of mortgage payments, plus a discharge fee of $200 to $300. If you transfer the mortgage to your new home, however, most lenders will waive this fee. Open mortgage usually carry higher interest rates but can be transferred or discharged without penalty.
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