Buying or selling a home in Ontario involves various closing costs for which buyers and sellers must budget. Closing costs refer to the fees and expenses, in addition to the sale price, that both home buyers and sellers have to pay to complete a real estate transaction in Ontario.
This guide will cover everything you need to know about closing costs in Ontario real estate deals.
Closing Costs for Home Buyers in Ontario
Home buyers in Ontario can expect to pay 1.5 to 4% of the purchase price in closing costs. Below is a detailed overview of the closing fees and disbursements they must pay.
Ontario Land Transfer Tax
A provincial land transfer tax applies to all real estate purchases in Ontario, ranging from 0.5% to 2.5% depending on the property value.
Toronto levies an additional municipal land transfer tax of the same percentage. Thus, home buyers in Toronto pay roughly double the amount of land transfer tax compared to other regions. First-time home buyers in Ontario can qualify for rebates of up to $4,000 provincially and $4,475 in Toronto.
For example, a first-time buyer purchasing a $700,000 home in Toronto would incur around $21.059.25 in combined provincial and municipal land transfer taxes. But they can get back $8,475 through rebates, lowering the taxes payable to $12,584.25
Down Payment
Your down payment is not technically a closing cost, but a significant upfront payment is required for the purchase. The minimum down payment is 5% for properties under $500,000, 10% for properties between $500,000 and $1.499,999, and 20% for properties over $1.5 million.
First-time home buyers also have the option of only 5% down for their first $500,000 borrowed, even if the home is over $1 million.
Ontario Legal Fees
In Ontario, lawyers must review documents, conduct searches, handle title transfers, and register mortgages in all real estate transactions. Depending on complexity, legal fees for buyers range from $1,200 to $2,400 on average.
The buyer’s lawyer will also incur disbursement costs for services like title searches, document registrations, courier fees and more. Disbursements can add a few hundred dollars.
Ontario Title Search & Title Insurance
To ensure the property’s title is clear and valid, the buyer’s lawyer conducts a title search for any defects. This incurs search fees paid to Teranet, Ontario’s land registry service provider.
Title insurance is recommended to cover risks uncovered in the title search. Typical title insurance costs $250 to $400. Together, buyers expect $300 to $600 for title search disbursements and insurance fees.
Ontario Home Appraisal
The mortgage lender will request a home appraisal before approving financing, which costs an average of $350 to $700.
The appraisal verifies that the property is worth the purchase price and qualifies for the loan amount.
Ontario Home Inspection
While optional, a professional home inspection before closing is highly recommended. This comprehensive inspection identifies issues with the home that could cost thousands in repairs.
Typical home inspection fees range from $400 to $700 for a single-family home, depending on the size, age, and location.
Mortgage Application & Registration
If financing the purchase, mortgage-related fees will apply, including interest, mortgage default insurance if under a 20% down payment, and mortgage registration filing fees of around $82.
Mortgage brokers may also charge service fees of 1% to 2% of the loan amount.
Ontario Property Survey
If an existing survey for the property dated within the last few years is unavailable, buyers may need a new survey to mark exact property boundaries. Depending on the property size and complexity, costs typically run $1000 to $2000.
Ontario GST/HST on New Homes
For brand-new properties, buyers must pay HST on the purchase price, which includes 5% GST and 8% PST in Ontario. This means the GST/HST in Ontario is 13%, which can add tens of thousands in tax.
Tarion Warranty Fee
On newly constructed homes in Ontario, buyers must pay a Tarion warranty fee to the builder, which ranges from $385 to $1500 based on the home’s purchase price. This covers deposits and defects.
Ontario Moving Costs
While not mandatory, buyers should budget for moving costs, which typically exceed $500 depending on factors like:
- Distance being moved
- Amount of possessions
- Type of home access – Elevator, stairs, etc.
- Time of year
Adjustments
When ownership legally transfers to the buyer, any expenses already paid by the seller covering time after the closing date must be prorated and reimbursed. Common adjustments include:
- Utility bills – Buyer reimburses the seller for unused water, hydro, etc.
- Property taxes – Daily rate credited to the seller for prepaid taxes
- Condo fees – Buyer pays their share based on the closing date
- Rent – Seller credits back any prepaid rent
These adjustments often add $500 or more to a buyer’s closing costs.
Closing Costs for Home Sellers in Ontario
While typically lower than buyer costs, selling a home also involves closing disbursements:
Realtor Commission Fees: In Ontario, real estate commission for sellers is typically 3.5% to 5% of the home’s sale price. This commission is paid to the seller’s and buyer’s agents from the sale proceeds, usually split between them.
Legal Fees: The seller’s lawyer will handle closing documents, title transfers, answering buyer requisitions, and releasing funds.
Mortgage Discharge: If selling before the mortgage term expires, penalties of 3 months of interest or more may apply. Discharge fees also range from $300 to $400.
Moving Costs: After the sale closes, you may also have to pay moving costs for your belongings as a seller.
In total, expect around $25,000 in closing costs on a $500,000 home sale in Ontario, with commissions being the most significant expense.
The Closing Process in Ontario: What to Expect
The closing or settlement process finalizes the real estate transaction, making it official.
Here are the key things to expect on closing day for a real estate purchase in Ontario:
- Legal review – The buyer’s and seller’s lawyers will review the final statement of adjustments and closing documents.
- Final walkthrough – The buyer completes a final property walkthrough before closing.
- Exchange of funds – The buyer provides funds for the down payment and closing costs, and the seller receives net sale proceeds.
- Closing and possession – The buyer is provided with keys, property ownership is transferred, and the new mortgage is registered on the title.
- Completion – The new owner takes possession, and the deal is complete!
Closing day can be busy with many documents to review and sign. Leave ample time to complete the closing process with your lawyer. Both real estate lawyers will ensure the transaction follows all legal requirements before releasing the keys.
Tips for Minimizing Closing Costs in Ontario
Here are some tips to keep your closing costs under control:
Shop mortgage rates – Compare rates amongst multiple lenders and brokers. Small rate differences can save thousands in the long term.
Negotiate commissions – Discuss options for lower realtor commissions as a seller if amenable.
Watch land transfer thresholds – Structuring offers just below pricing thresholds for higher land transfer tax rates, which can potentially save thousands.
Leverage new housing rebates – First-time home buyers and those purchasing new construction may qualify for rebates and credits.
Sell privately – Forgoing realtor representation can avoid thousands in commission. But you lose out on exposure.
Rent then buy – Consider renting at first to meet residency terms for first-time home buyer incentives.
Do-it-yourself moving – Skip professional movers and move yourself to save on costs.
Ask about discounts – Some lawyers and insurers may offer discounts, especially on bundled services.
Factor costs in early – Improper budgeting for closing fees is a top regret among home buyers. Plan ahead.
With some savvy preparation, you can reduce the sting of closing costs when buying or selling your home.
Explore our guide on Closing Costs for other provinces in Canada
FAQs on Closing Costs Ontario
How are land transfer taxes calculated in Ontario?
Land transfer taxes in Ontario are based on brackets for different property values. Rates range from 0.5% to 2.5% of the purchase price. Toronto has an additional municipal tax.
When are closing costs due in Ontario real estate deals?
Closing costs must be paid in full on the closing or settlement date before legal possession of the property is granted.
Why are closing costs so high in Ontario?
Significant costs like land transfer taxes, commissions and legal fees can add up. High demand and prices in Ontario real estate also increase closing costs.
Do I have to use a real estate lawyer for closings in Ontario?
Yes, a lawyer is required by law to handle legal documentation and registration for all Ontario real estate transactions.
Should I buy title insurance when purchasing a home in Ontario?
Title insurance is highly recommended for around $500 to cover risks uncovered in the title search that could affect ownership rights.
How can I estimate my mortgage penalty for selling early in Ontario?
If you are selling your home, contact your lender directly to find out about mortgage discharge penalty fees for breaking your term early.
Is home staging worth the cost when selling in Ontario?
While expensive at around $3,000, staging can increase the sale price and speed up the selling process significantly.
Can I deduct closing costs in Ontario when calculating capital gains tax?
Some closing costs for investment properties may qualify as capital expenses. Check with your accountant on tax deductibility.
This guide covers the key closing costs you can expect during an Ontario property purchase or sale. However, it’s best to connect with professionals to get more accurate estimates tailored to your specific transaction.
Consult with a mortgage broker at Best Mortgage Online who can explain loan-related closing fees to ensure a smoother property transfer in Ontario.
