Closing Costs

For a purchase, the mortgage lender does not normally fund every dollar needed to close. The borrower may also need the down payment, land transfer tax, legal fees and disbursements, title insurance, property adjustments and other transaction costs. The deposit already paid usually becomes a credit toward the purchase price rather than an extra cost.

The most useful planning equation is cash to close = purchase obligations and adjustments − mortgage advance − deposits/credits already applied. The lawyer’s final trust statement or statement of adjustments determines the actual amount, not a generic online estimate.

Land transfer tax is usually the largest government closing charge on an Ontario resale purchase. Legal fees and disbursements cover the lawyer’s work and transaction expenses. Title insurance may be arranged through the lawyer. Appraisal or inspection costs can arise before closing. Property-tax, condominium, fuel or other adjustments may move money between buyer and seller so each pays the appropriate share for the relevant period.

If mortgage default insurance applies, the insurance premium itself can normally be added to the insured mortgage subject to program rules, but Ontario provincial sales tax on that premium is a separate cash cost and is not simply added to the insured loan in the same way.

Ontario’s land transfer tax uses graduated brackets. For land containing one or two single-family residences, the current provincial rates are 0.5% on the first $55,000, 1% from $55,000 to $250,000, 1.5% from $250,000 to $400,000, 2% above $400,000, and 2.5% on the portion above $2 million. Different rules can apply to other property types and special circumstances.

Eligible first-time home buyers can currently receive an Ontario refund of up to $4,000. Eligibility is specific; being called a “first-time buyer” in ordinary conversation is not enough. Toronto also has a separate municipal land transfer tax. Use the Land Transfer Tax Calculator for planning and have the lawyer confirm the actual tax treatment.

A seller may have prepaid property taxes, condominium fees or other property expenses that benefit the buyer after closing. Depending on the contract and the item, the buyer can reimburse the seller for the post-closing portion. Other amounts can move in the opposite direction.

These are closing adjustments, not changes to the mortgage principal. A buyer who budgets only purchase price minus mortgage minus deposit can therefore be unexpectedly short even when the lender has not changed the approved loan.

A $700,000 refinance does not mean the borrower receives $700,000. The lawyer may have to pay the existing first mortgage, HELOCs, second mortgages, penalties, tax claims or other directed debts before releasing any residual funds. Lender, brokerage, appraisal and legal costs may also reduce the amount available depending on the product.

The decision metric is therefore net refinance proceeds = gross new advance − mandatory payouts − transaction costs. If the goal is debt consolidation, also compare the new total interest cost and amortization rather than celebrating a lower monthly payment created by spreading debt over many years.

“Closing costs” is a practical cash-flow term. Cost of borrowing / APR is a disclosure concept governed by legislation and can include or exclude particular charges depending on the rules. Ontario’s cost-of-borrowing regulation, for example, distinguishes certain property-registration and professional-service costs from other borrowing charges.

That means two useful analyses can produce different totals: “how much cash do I need on closing day?” and “what costs are included in the disclosed borrowing cost?” Do not use one as a substitute for the other.

Property adjustments, per-diem interest, exact payout figures and legal disbursements may not be final when the mortgage is first approved. A prudent closing plan keeps additional liquid funds available instead of committing every dollar of savings to the down payment.

Use the Closing Cost Calculator for an early estimate. Then replace estimates with the lawyer’s exact figures as soon as the final closing statement is available.