Seven Hidden Costs You Need To Know Before Moving to Toronto
Welcome to the Living in Toronto Remax. My name is Stuart Nodell of Remax Hallmark. If you’re considering purchasing property in Toronto, there are seven hidden costs you need to know about.
Hidden Cost #7: Mortgage Insurance
If you are putting down less than 20% on your mortgage, your mortgage will be considered ‘high ratio’, which means the mortgage must be insured. Mortgage insurance is a precautionary measure for your lender in case you default on the mortgage.
Typically, premiums range between about 0.5% to 4.5% of the total mortgage you are taking out. Most mortgage policies in Canada are provided by CMHC or Genworth. Your premiums are dependent on the size of the downpayment you put down, so the bigger the downpayment, the lower your premiums will be. Your premiums can be paid in one lump sum at closing, or they can be paid as instalments with your regular mortgage payments. However, when you pay them as instalments on your mortgage payments, you will pay more because you will be paying interest on those premiums. The interest rate on the premiums will be the same as the rate you pay on your mortgage.
Ontario residents are subject to an 8% provincial sales tax levied on mortgage insurance premiums. In some cases, even with 20% down, you may still be required to obtain mortgage insurance. This typically happens when you are self-employed, or if you have a poor credit history.
Hidden Cost #6: Home Insurance
The cost of insurance can vary depending on where you live and the price of the home. The cost can also be affected by ‘red flags’ the insurance provider may pick up on, such as issues with wiring, plumbing, flood plains, area crime rates and even postal codes — all of these will have an impact on the cost of home insurance.
In 2020, the average annual home insurance cost was about $2200 in Toronto. You can expect your own costs to range somewhere between $1000 and $3000 per year. One of the most important factors to take into consideration when calculating your home insurance rate is the replacement cost of your home. This is the material value taken from renovations and additions, not the actual price that you paid for the home. It is important to be mindful of liability and comprehensive insurance, because they protect you from lawsuits in the event that somebody gets hurt on your property. Other factors you need to consider are the replacement cost of belongings (contents insurance), how close you are to the nearest fire hydrant, any past claims history, as well as your credit history — these can all impact home insurance premiums.
Hidden Cost #5: Home Inspection
A home inspection will cost around $500 (plus HST). You can expect a good home inspector to provide you with a comprehensive report outlining all of the deficiencies in the home. The home inspector will check things such as:
— roofing systems,
— air conditioning,
— the presence of moisture (this can be done with an infrared camera), and
The completed inspection will provide you with an unbiased opinion of the property and can give you confidence in the product you are purchasing.
Hidden Cost #4: Legal Fees
Legal fees depend on a variety of factors:
— the type of home you are buying,
— the complexity of the home, and
— your lawyer’s level of expertise.
In Toronto, you can expect your legal and disbursement fees to cost about $2000.
Title insurance is a separate cost that depends on the purchase price of the home. It is facilitated by the lawyer and is a one-time fee. You can expect title insurance to cost approximately $200 to $350. On titles that are more complicated, that cost could increase. Title insurance is a protective measure to protect the home’s title against matters such as ownership disputes, liens, encroachments, surveys, property tax arrears and zoning issues.
If you are buying a condo in Toronto, another legal fee you will have to consider is the status certificate report. There is a cost for your lawyer to review that. You will want the lawyer to make sure there is no judgements against the condo corporation, that there are no special assessments and that the current owner that you are purchasing from is up-to-date with all their maintenance fees.
Lawyers are responsible for many other things, but most importantly closing the sale. About two weeks before closing, they will perform a title search to ensure that there is free and clear title, with no encumbrances or liens registered against the property. The day of closing, the lawyer will handle the exchange of funds from your lender to the seller. Then, they will then transfer the deed into your name at closing.
Another fee buyers need to know about are adjustments. Adjustments cover costs that the seller has pre-paid, such as property taxes or utilities. Your lawyer will break down the per-day costs, so that you know at time of signing what those expenses are. You will pay for them at final signing which takes place just prior to closing. The minimum amount you need to put down really depends on the purchase price of your home. Typically you can expect to put down anywhere from 5% to 20% down. Throughout the course of your transaction, your lawyer is likely to be out of pocket for expenses on your behalf. These are knows as disbursements and they tend to be costs such as land title and tax searches, land registration fees, digital execution fees, agent fees, courier expenses and general office expenses. There are some lenders who will provide financing with less than 5% down.
Hidden Cost #3: Downpayment
When buying a home in Toronto, the downpayment is essentially your ‘skin in the game’. The downpayment is deducted by your lender from the total cost of the home. (The rest of the cost is covered by your mortgage.) They do come with higher interest rates which will cost you more over time, but this might be the opportunity you need in order to get into the market.
Here is an example:
Suppose the home that you are buying costs $800,000. If you are making a 10% downpayment, that means you need to have $80,000 at closing. Keep in mind that your lender will expect you to have the funds to cover your closing costs, which are separate from your downpayment. Closing costs include legal fees, land transfer taxes and disbursements.
Hidden Cost #2: Deposit
The discussion about the deposit is a critically important one that you must have with your realtor during your initial consultation. It is easy to take for granted that you have the deposit money in an account, but do you have quick access to those funds? The funds must be readily accessible because once you have an accepted offer, the deposit is going to be cashed promptly by the listing agent. Toronto has an extremely fast-paced market and it is quite common that you will be required to present your deposit within 24 hours of an accepted offer (in the form of a bank draft, a certified cheque or a wire transfer). Otherwise, you could be in breach of contract. The deposit amount should at least 5% of the purchase price. This demonstrates that you are negotiating in good faith.
Hidden Cost #1: Land Transfer Taxes
Here in Toronto, we have two land transfer taxes — the provincial land transfer tax as well as the municipal land transfer tax. If you are a first time home buyer, you can be rebated for up to $4000. The cost of the land transfer tax is calculated as a percentage of the cost of your home. The land transfer tax is calculated as such:
Amounts up to and including $55,000: 0.5%
Amounts from $55,000 to $250,000: 1%
Amounts from $250,000 to $400,000: 1.5%
Amounts from $400,000 to $2,000,000: 2%
Amounts over $2,000,000: 2.5%