One of the most confusing aspects of getting your new home is the collection and payment of your Property Taxes. Mortgage Lenders are concerned about Property Taxes because governments can seize a property and sell it for non-payment of taxes and not be responsible to pay-off the Mortgage. In order to prevent this from happening lenders in Canada will often collect your Property Taxes from you and pay them on your behalf when they become due. There are 3 amounts related to Property Taxes during the purchase process that you need to be aware of;
1) The amount you owe for the balance of the current year.
2) The amount needed to top-up the balance of your Property Tax Account at your mortgage lender for the next taxation year.
3) The amount that will be added on to your mortgage payment.
This Year’s Taxes - When you go to your lawyer’s office to close your new home purchase your lawyer should request that you pay the Property Taxes due for the balance of this year (the period of time you actually own the home). Be sure to ask your lawyer how much this will be.
Next Year’s Taxes - You may need to top-up your Property Tax Account at your Mortgage lender so there will be enough in your account to pay the Taxes when they come due next year.
Tax Amount - Your Mortgage payment is properly the total of the combined Interest and principle, banks will divide the annual Property Tax amount by the number of mortgage payments you make annually and add this to your mortgage payment, it will come out as 1 amount but will be made up of 3 componenets, your principle, yoru interest, and your property tax payment.
In the Future - Once this is sorted out to everyone’s satisfaction there is always the question of increase and surpluses. Tax increases are usually assumed and many lenders build in 2 or 3% per year to insure there are sufficient funds to pay your Property Tax bill, any surplus in your tax account will come back to you when you sell your home or close your mortgage.
In Case of Problems
Remember that there are a number of people who must do their job right to get your Property Taxes properly accounted for; people in your lawyer’s office, people at your mortgage lender and people at the Provincial Taxation office. Sometimes things go astray, Property Identification Numbers are mixed up, etc. If you get a Tax Bill from the province do not panic, your lender has collected your money to pay your taxes and a call to Customer Service at your Lender will help you understand the problem. Remember to have your mortgage number and your tax bill with you when you call. Your mortgage broker is here to help you with your mortgage and you can always call your Centum representative for help; while we cannot call on your behalf we can assist you with any issue that may arise.