Mortgage closing costs are administrative and legal expenses related to purchasing property. Buying a home can be exhilarating but it’s important to realize that there are more costs associated with it other than the mortgage loan and interest. Knowledge of closing costs will help you greatly to figure out what exactly you are expected to pay for your new home.
For a conventional mortgage in which you receive a loan for 80% of the cost of your mortgage you will need to pay:
- Land transfer taxes: this is a non-recurring tax levied by provincial governments. The amount is determined based on a percentage of the price of the property. The rate is different in every province and is applied based on the price of your property. They tend to be between 0.5% and 2%.
- Legal and notary fees: during the process of buying your house and going through the motions of your mortgage it is advised to be represented by a lawyer or notary. The fees associated to the lawyer will be charged to you.
- Fire insurance: In Canada it is essential to take out fire insurance at the point of taking possession of your property. The mortgage lender will require this in order for you to receive the money. Most insurance companies will want you to have your home inspected before insuring the property. Go through these proceedings early so you don’t encounter any problems when you want to move into your new home.
- Home inspection: It is recommended to get any new home inspected before taking out insurance or considering buying the property. This is especially important when the property is not a new construction. When hiring a professional inspector you will find out all of the major, minor and latent problems. A professional inspection can be expensive but will save the buyer much more money in the long term.
- Appraisal fees: Before being granted a mortgage many Canadian mortgage brokers and lending institutions will expect an appraisal of the home to better understand the property’s value.
- Disbursements: There are many little expenses including title searches and registration fees that will need to be paid by the buyer
- Land Survey fee or title insurance fee: A land survey (done to delimitate the boundaries of the property) is usually taken care of by the lending institution but if one has never been done or the survey is not available you will be charged to get a new one. Some lenders will agree to a title insurance fee which is typically less expensive.
A mortgage in which a borrower has made a down payment of less than 20% is called a high-ratio mortgage and requires the borrower to pay insurance fees. A borrower with a high-ratio mortgage will be expected to pay all the closing costs listed above as well as insurance to protect the lender against default.