Closing costs and mortgage fees

When you’re buying a home, you’ll need to budget in closing costs. While closing costs can vary between lenders, property types and locations, they usually cost between 1.5% to 4% of the value of your property. Find out about the different types of closing costs and learn how to keep your expenses to a minimum in our guide below.

What are closing costs – and how much do they cost?

Closing costs cover any legal and administrative expenses that you incur during the house buying process. Both the buyer and the seller will have closing costs to cover – but the majority go to the buyer.

While closing costs for the buyer can vary depending on the mortgage lender, property type and location, they typically sit between 1.5- 4% of the value of the property.

Costs before you close your mortgage

Your Offer to Purchase the property is usually conditional and is based upon a few factors including the home passing an inspection and the buyer getting approved for a mortgage. Costs that the buyer will incur before closing on a mortgage might include:

• Home inspection fee. While you don’t have to get a home inspection, it is a good idea since inspectors can help you discover any problems with the home, ranging from structural issues to leaks. While it depends on how experienced the inspector is as well as factors such as the size of the home, a home inspection typically costs around $500.
• Deposit. You’ll need to put down a deposit when you make an Offer of Purchase on a home – and there’s usually no minimum amount, unless specified in the contract. The deposit is different from your down payment, which is an amount between 5-20% of the value of the home (unless you have more to offer of course). Once your Offer of Purchase goes through and the home is yours, the deposit will be deducted from the down payment.

Closing costs paid by the buyer

• Land transfer tax. While costs vary by city and province, this cost typically ranges from 0.1% to 2.0% of the value of the property.
• Title insurance. Title insurance covers the homeowner in the case that there is a dispute over the land or home. This typically costs around $100 to $300, depending on the lawyers fees.
• Legal fees. You’ll need to pay for any documents prepared and sealed by a lawyer, as well as registration and filing fees. These costs can vary, but usually start around $500 and can increase to upwards of $1,500 or more.

While these fees won’t be incurred by all buyers, you may also face:

• Land survey fee. While not all lenders will require this, you may need a land survey to determine where the borders of your land are. This usually costs between $1,000 and $2,000, however some lenders may allow you to use the previous owners land survey.
• Mortgage application fee. Some lenders will charge a fee in order to apply for the mortgage, while some brokers may also charge a fee for helping you find the right mortgage lender. You can try to negotiate this fee and have the lender cover it.
• Appraisal fee. An estimate of the value of your property is done by your mortgage lender, and usually costs between $250 and $400. This is necessary so that the lender knows how much your home is worth should you default on your mortgage repayments. You should note that some lenders will cover this cost themselves, and if not, you may be able to negotiate that the lender cover it.
• Estoppel Certificate Fee. If you’re buying a condo or similar unit, a one-time Estoppel Certificate will be required which costs around $100. With this, you’ll receive a comprehensive information package regarding rules and information surrounding your specific condo building.
• PST on mortgage insurance. If you put a deposit of less than 20% down, you’ll have to pay mortgage insurance. While mortgage insurance itself is usually added onto your monthly mortgage payments, you’ll need to pay the PST in full – and in cash – at the time of closing.
• Water tank and septic tests. If your home has a well, you’ll be on the hook for some water tests. Likewise, if the home has a septic tank, it’ll need to be tested to make sure it works properly. While you may have to cover these costs, you could try to negotiate with the seller in your Offer to Purchase that they cover it.

Costs factored into your mortgage

• Mortgage insurance. If you provide a down payment of less than 20% of the purchase price of your property, you’ll have to pay mortgage insurance. Mortgage insurance can either be added onto your monthly mortgage payments (over the course of the amortization period) or can be paid in a one-time lump sum payment at the beginning. While interest rates for mortgage insurance vary depending on the size of down payment you provide, you’re looking at paying anywhere from 2.8% to 4% of your mortgage amount.
• Interest. The amount of interest that you’ll pay on your principal balance will vary depending on the rate of interest that you’re offered, the loan term, the number of years that you amortize your mortgage over and whether you choose a fixed- or variable interest rate. Remember that you can typically lock in rates for anywhere from six months to ten years, and once this term is up, you’ll need to refinance your mortgage at a new rate. Depending on economic conditions, mortgage interest rates could be higher or lower.

Other costs you’ll need to factor in

Aside from paying closing costs, you’ll also need to factor in:

• Monthly mortgage payment. You’ll need to budget in your monthly mortgage payment, which includes paying toward both the principal balance and the interest.
• Property taxes. Property tax is calculated as a percentage of your home’s value, and typically costs between 0.5% to 1.25%, but depends on the municipality and province or territory that your home is located in. You’ll need to pay property tax every year, and can pay it in a lump sum or in monthly payments.
• Property insurance. Property insurance covers the cost of any damages to your home or its contents. Insurance premiums are usually paid either monthly or annually and the cost varies greatly depending on the insurance provider, as well as the size and type of your home and the contents you insure inside.
• Utility bills. You’ll need to pay for any utilities including heat, hydro, gas and water, as well as other bills like cable, Internet and phone. Any prepaid bills, including property tax, that have been paid for the year by the previous owner will need to be reimbursed upon closing.
• Any condo fees. If your property is a condo or similar, you’ll likely need to pay a monthly condo fee. While it depends on the building you buy in, condos fees can include anything from maintaining parking lots and common spaces, to covering garbage disposal and even some utilities like heat and water.
• GST/HST on new builds. If you’re buying a new home, you’ll face GST/HST – which varies by province. Luckily, most builders include tax in the total cost of the property.

Tips to reduce your costs

Most fees and taxes are set in stone, but there are a few ways to cut down your costs.

• Compare mortgage lenders. Getting the best interest rate and terms that you’re eligible for can greatly decrease the amount you’ll pay in interest. Comparing multiple mortgage lenders to find the most favourable rates and terms can save you thousands of dollars over the life of your mortgage.
• Comb through the fees, line by line. If anything seems off, contact your lender. For example, if your lender hasn’t been sending you papers via messenger, yet you’re being charged courier fees, you can get those removed.
• Pay for your home in cash. If you can pay for your home in cold hard cash, you can avoid some of the fees that come with being approved for a mortgage including interest, the appraisal fee, the inspection fee, mortgage insurance and some legal fees.
• Ask for seller concessions. Sometimes sellers contribute to your closing costs to speed up the sale. You could potentially negotiate that the seller take on some – or all – of the closing costs. With this strategy, you’re more likely to be successful in a buyer’s market.
• Talk to your bank about discounts. To incentivize mortgages, some banks offer discounts and rebates to their existing customers. If you’ve been a long-time customer with your bank, you may be able to score a more competitive mortgage rate and terms.
• Consider a no closing costs mortgage. If you’re strapped for cash, you can avoid upfront fees by getting a no closing costs mortgage. But one of two things will happen: the lender will charge you a higher interest rate, or they’ll roll those fees into the mortgage which will increase your monthly mortgage payments.
• Choose your closing date wisely. Once your closing date arrives, you’re officially responsible for all costs – everything from paying the down payment to covering your monthly mortgage payments, utility bills, property tax and home insurance. If you close later in the month, many of your taxes and bills will be prorated, which can save you a chunk of money.

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Bottom line

If you’re planning to buy a home, you’ll need to set aside around 1.5% to 4% of the value of your property to cover closing costs. They’re unavoidable and vary based on where you live, what kind of property you’re purchasing and the mortgage lender and lawyer you choose.

To save as much money as possible, compare lenders and types of mortgages in our complete guide here.

Frequently asked questions

• How much money should I set aside to cover closing costs?

  While closing costs are usually between 1.5% to 4% of the value of the property, it’s best to budget on the higher end and set aside between 3-4% to cover your bases.

• What happens on closing day?

  On the day your new home is set to close, the following typically happens:

  • You will need to provide your down payment (minus the deposit you made earlier).
  • Your mortgage is funded by your lender.
  • The previous homeowner is paid and the home is registered in your name.
  • You get the keys and title deed to your new home!

• Do I need a lawyer to buy a home?

  Yes – you’ll need a lawyer to help prepare and file any necessary documents (such as the title deed). Lawyer fees usually start around $500, but can cost you upwards of $1,500 in some cases.

• Why are property taxes split between the buyer and seller?

  It’s about occupancy. The seller pays the property taxes for the period they occupied the home that year, and the buyer covers their time. So if the seller lived in the home for 9 months of that year, they’d pay 75% of the property taxes, while the buyer would be on the hook for the remaining 25% (or 3 months).

• Do transfer taxes apply to all provinces?

  All provinces except Alberta and Saskatchewan have property taxes. However, Alberta and Saskatchewan instead charge a smaller transfer tax. Homebuyers in Toronto should note that they’ll also face a smaller municipal tax (in addition to provincial land transfer tax).

  First-time homebuyers can look forward to a rebate on land transfer tax.