If you’re buying a home in Ontario, set aside a few thousand dollars to cover your closing costs.
The mortgage payments themselves, while hefty, aren’t the only financial aspects of buying a home that you need to budget for. Closing costs should be part of your overall home-buying budget, which covers administrative and legal expenses related to purchasing a property.
In this article, we’ll discuss closing costs in Ontario, what they include, and how much you can expect to pay.
Key Points You Should Know About Closing Costs In Ontario
- Closing costs in Ontario can cost anywhere between 1.5% to 4% of your home’s purchase price.
- You need to pay closing costs in a lump sum on closing day. As such, it’s important to budget for these extra costs before you make an offer on a home.
- Closing costs can include several items, though not all apply to every real estate transaction.
What Are Closing Costs?
Closing costs are a one-time upfront payment you need to make before you can take possession of your home. Closing costs are not included in your mortgage costs and can include various fees that can add up to thousands of dollars.
How Much Are Closing Costs In Ontario?
Generally speaking, you can expect to pay anywhere from 2% to 5% of the home’s purchase price on closing costs. So, if your home costs $500,000, you should budget around $10,000 to $25,000.
This is simply an estimate. The closing costs you have to pay could be under or over this range, depending on multiple factors, such as where the property is located and the type of home you’re buying.
Types Of Closing Costs In Ontario
Here’s a rundown of the closing costs that may be on your list:
Home Appraisals
Buyers are responsible for paying for appraisals, which can cost between $400 and $500, though the price could be much higher for larger or unique homes.
Before lenders agree to extend a loan, they’ll want to verify the value of the property being purchased. Ideally, the appraised value will match the purchase price. If the buyer is requesting more money for a mortgage than what the home is worth, the lender probably won’t agree to the loan unless the buyer can bridge the gap themselves.
Home Inspections
Home inspections can cost anywhere between $400 to $700, depending on the size and condition of the home.
It’s highly recommended that buyers have a home inspection conducted on the home they agree to purchase. Including a home inspection clause in your contract will give you a chance to have the home scoped out by a professional to uncover any current or potential future problems that may not have been noticed during the initial walk-through.
Lawyer Fees
In Ontario, it’s customary for real estate lawyers to be involved in real estate deals. A lot of paperwork will need to be signed in the lawyer’s office, which your attorney will look over to make sure you’re entering into a sound agreement. Your lawyer is the one who usually hands over the keys when the deal is done.
The fee varies from one deal to the next, but you will probably pay between $2,000 to $3,000 on average in legal fees.
Title Search And Insurance Fees
If these fees aren’t already included in the legal fees, you’ll pay an additional $250 to $400 for a title search to be conducted and for title insurance to protect you in case something is found on the title.
A title search is important because it will ensure the title is free and clear of any issues, such as liens. It will also ensure that the person selling you the home has the legal right to do so.
Land Transfer Taxes
Whenever a property is transferred from one party to another, land transfer taxes apply to the transaction. Land transfer rates are different in every province and are applied to the property price. They tend to range from 0.5% and 2%.
For those buying real estate in the GTA, there are two separate land transfer taxes to be paid: municipal and provincial. As such, the land transfer taxes that must be paid when buying a home in Toronto are roughly double compared to anywhere else in Ontario.
The good news is that there are rebates available for land transfer taxes paid. In Ontario, for instance, first-time buyers can get up to $4,000 back. And in Toronto, rebates of up to $4,475 are available.
Land transfer tax rates in Ontario and Toronto are currently identical and are as follows (as of 2024):
| Property Price | Marginal Tax Rate |
| Up to $55,000 inclusive | 0.5% |
| Over $55,000 to $250,000 inclusive | 1.0% |
| Over $250,000 to $400,000 inclusive | 1.5% |
| Over $400,000 to $2 million | 2.0% |
| Over $2 million with land that features one or two single-family homes | 2.5% |
Land Transfer Tax Calculation
To illustrate how much you could potentially pay in land transfer taxes, let’s use an example, assuming you’re buying a home in Toronto versus Ajax for $500,000:
| Toronto | Ajax | |
| Home Price | $500,000 | $500,000 |
| Provincial Tax | $6,475 | $6,475 |
| Municipal Tax | $6,475 | $0 |
| Total land transfer tax | $12,950 ($6,475 + $6,475) | $6,475 |
Since Toronto has two land transfer taxes (municipal and provincial), you’re essentially paying twice as much as you would if you purchased a home in a city, like Ajax, that does not have its own municipal land transfer tax.
Adjustments
Any property taxes, utilities, or condo fees that the seller has paid after the closing date will have to be reimbursed to the seller.
Home Insurance
In Canada, it’s essential to take out home insurance at the point of taking possession of your property. Most mortgage lenders will require you to have home insurance to receive the money. Similarly, most insurance companies will want you to have your home inspected before insuring the property.
Mortgage Default Insurance
If you put less than 20% down towards your purchase, you’ll have to pay mortgage default insurance, which is based on the amount of your down payment:
- 5% to 9.99% down payment = 4%
- 10% to 14.99% down payment = 3.1%
- 15% to 19.99% down payment = 2.8%
Mortgage default insurance is usually rolled into your mortgage, so you’ll be paying it over the amortization period. However, you may be required to pay tax on the insurance upfront in one lump sum. For instance, in Ontario, 8% PST applies to mortgage default insurance, which must be paid in full at closing. Unlike the insurance premium, the PST is not added to the mortgage balance.
This type of insurance is offered by the Canada Mortgage and Housing Corporation (CMHC), Sagen MI Canada, and Canada Guaranty.
GST/HST On New Home Construction
New home purchases in Ontario are subject to 13% HST, which includes 5% GST and 8% PST. New home builders sometimes include this added cost in the purchase price. In this case, it can be financed with the mortgage. But if they don’t, you’ll need to add this additional expenditure to your closing costs.
It should be noted that existing home sales are exempt from HST taxation.
Fortunately, the GST/HST New Housing Rebate can help you get much of this extra cost back if you qualify. This rebate program is available to home buyers who are purchasing a newly constructed home or a property that has been significantly renovated. The home must also be your primary residence.
The maximum rebate you can get back is $24,000 if the HST was paid on the land purchase, and $16,080 if it wasn’t. Keep in mind that you must maintain ownership of the new home for at least 12 months, either by living in it yourself or renting it out. If you sell the home before this 12-month period after from closing, you’ll need to repay the rebate to the government.
Property Survey
A property survey verifies the legal boundaries of a property. It can be helpful to understand exactly where the property lines are. Especially if you want to build structures on the land, such as a fence, shed, or swimming pool.
Some lenders require an up-to-date survey to confirm the home’s property lines. Even if the seller already has one, you may still have to pay for a new one if the survey is older. As the buyer, you may have to pay to request a survey, which can be as little as a few hundred dollars to well into the thousands of dollars for larger and more intricate properties.
Septic System
If you’re buying a home in a rural area, odds are the home is not connected to municipal sewer lines. In this case, it will need a septic tank system for wastewater flow and sewage treatment.
As the buyer, you’re responsible for ensuring the septic system is in good working order. Bringing on a professional inspector for this purpose can cost anywhere from $350 to $500.
Status Certificate Review
If you’re buying a condo, have your lawyer review the condominium’s Status Certificate before you finalize the deal. This certificate will tell you important information about the condo. Including how much money is in the reserve fund, whether any special assessments have been or will be taking place, and if the condo is currently involved in legal battles.
The cost to obtain a Status Certificate is about $100.
Other Related Fees
On top of these fees, you’ll also have to pay the yearly property taxes and school taxes, electric and utility bills, home insurance, etc.
On top of that, you should also consider maintenance costs. Your roof will eventually have to be replaced, things might break down, you might want to repaint, etc. All of these things constitute homeownership fees.
What Happens On Closing Day?
Closing day is when you formally take legal possession of the home. Your lender will send the mortgage funds to your lawyer. You’ll meet with your real estate lawyer and provide them with the funds needed to cover your closing costs and the remainder of the purchase price. Your lawyer will then use the funds to pay the seller.
The title will then be registered in your name, and you’ll receive keys to your new home.
How Do Realtor Commissions Work In Ontario?
In Ontario, it’s customary for the seller to cover the cost of real estate agent commissions. When a seller lists their home for sale, the listing agent they hire to market the property will charge them a commission rate, on average around 5%. This fee is then split between the listing and buyer agent.
The way that the commission is split will depend on what is negotiated. Listing agents will usually advertise their specific commission split to buyer agents. For instance, the commission can be split 50/50, though it can be divided in any way fitting the buying and selling agents.
Finding The Right Mortgage Lender in Ontario
When it’s time for you to apply for a mortgage, you might automatically head to your bank to do so. While this is a viable option, you have other options. Consider working with a mortgage broker to shop rates from multiple lenders.
A mortgage broker can compare all the mortgage terms, interest rates, and fees to help you make a better decision on which lender to work with.
The difference between working with a bank versus a mortgage broker is that a broker works for you, while the bank works for themselves. Banks are out to make a profit and are only able to offer the limited products that they have. Instead, a broker works on your behalf to find the best and most affordable mortgage and has access to multiple loan types and terms.
Final Thoughts
If you’re buying a home soon, you’ll want to get a head start with the mortgage application process. Just be sure your financial situation is healthy enough to afford your mortgage payments and all the closing costs in Ontario. Loans Canada can help connect you with a third-party mortgage lender who will offer you a mortgage at ideal terms and the lowest rate.
