Now Canada is stemming foreign real estate speculation, why do real estate closings cost so much? Could it be the disconnect between home buyers’ hopes and the reality of the real estate closing process in Ontario?
The high price of real estate closings isn’t the only reason rentals are surging while homeownership has declined by four per cent since 2011. But they contribute. Assuming the deal goes well (what happens when it doesn’t), expensive real estate closings can be a nasty surprise.
Here’s what we mean.
Average Closing Costs in Ontario
Costs for real estate closings equal 1.5% to 4% of a home’s sold price. Added to the average $865,279 Ontario home price ($1.1 million in Greater Toronto Area in February 2023), it’s easy to see why that matters. At the high end, that’s $35,000 to $44,000 home buyers need on top of an aggressive down payment.
Speaking of which, Canada Mortgage and Housing Corporation (CMHC) no longer accepts borrowed down payments. Buyers have to show a down payment has no strings attached, aka a non-repayable gift. That’s a $61,500 bill to qualify for a high ratio mortgage on an $865,279 home. How can you borrow money for a down payment?
Using the Bank of Mom and Dad
GTA buyers may be out of luck. CMHC only insures properties valued at below $1 million, whether for the purchase price or as-improved/renovated value. How about that “Bank of Mom and Dad”? Tapping investments or savings to loan offspring cash for a home cost four of 10 parents around $41,800 in 2022, almost as much as real estate closings alone. No strings attached gifts averaged $73,600 (Toronto Star, March 19, 2022).
That’s not all home buyers can expect in sticker shock expenses. High ratio mortgages that permit minimum 5% to 10% down payments come with default insurance premiums of up to 4%. Default insurance is government’s assurance to lenders they’ll be compensated if a buyer can’t pay the mortgage. At 5.04%, the present going rate for fixed-term, five-year mortgages from Canada’s six big banks, default insurance tacks on $31,140 to an $865,279 home.
Affordable Housing Competition Fierce
Little wonder young adults are staying out of the real estate market in droves. With federal immigration targets set to attract 1.45 million permanent residents between 2023 and 2025, the competition for affordable housing is fierce.
Can government and anxious home buyers land on the same target? Home prices blipped in 2022 and the pain of suffering through expensive real estate closings may get worse when foreign buyer speculation resurfaces. But hopeful buyers can win if they factor in beforehand the real costs of real estate closings.
Home Closing Costs to Budget For
What’s the final tab on real estate closings in Ontario? Here’s what to anticipate:
- title transfer fee
- title insurance to prevent mortgage fraud
- provincial land transfer tax
- Municipal Land Transfer Tax in Toronto
- fire and flood insurance
- property appraisals and home inspections lenders require
- mortgage discharge or new mortgage set-up fees
- If they apply, portable mortgage transfer fees
- HELOC (home equity line of credit) payouts
- condo certificate or estoppel certificate charges
- for buyers with less than 20% down, mortgage default insurance premium plus Ontario sales tax
- a share of property tax and utility bills
- HST for new build homes
- and legal fees and disbursements*.
Home sellers pay both realtors’ commissions plus 13% sales tax, mortgage payout costs to break a mortgage if they sell before a term expires, and legal fees and disbursements.
Sticker shock it is.
Axess Law charges flat rate legal fees for in-person or virtual real estate closings.
Linda Mueller, LLM, is Digital Content Creator for Axess Law, an Ontario and British Columbia flat rate real estate law firm. Axess Law is a leader in remote video conferencing, with virtual real estate lawyers available anywhere in Ontario or British Columbia, 7 days a week. The firm has in-person lawyers in the Greater Toronto Area, Ottawa, and Vancouver.