Warning: Are You Budgeting For These Mortgage Fees?

by Jay Calafiore

mortgages101There are a bunch of miscellaneous fees that come with getting a mortgage known as closing costs.

Some of these fees may be negotiable and some are set.  They can cost thousands of dollars so it’s important that you budget for them appropriately.

Planning for these costs ahead of time will also remove any surprises or difficult last minute hurdles when purchasing a home.

Mortgage Insurance

If you get approved for a high ratio mortgage, you will have to pay mortgage insurance provided by the Canada Mortgage and Housing Corporation, Genworth Financial Canada or AIG.

This will range anywhere from 0.5 percent to 3.15 percent of the total loan amount.

This protects the lender and ensures the loan will be repaid even if the borrower (you) defaults. The insurance fee is determined by a formula so there is no room for negotiation. Typically it’s capitalized onto your mortgage .

Property Appraisal

Lenders have the option to require a property appraisal of your prospective home. They may also choose the professional appraiser to determine the market value of the property.  Generally a real estate appraisal will cost approximately $250.

Most banks will require an appraisal of the property prior to granting a mortgage.  In the case of hi-ratio mortgages, the application fee of $165 includes a market value appraisal.

Land Transfer Tax

A land  transfer tax is exercised by some provinces on all property transactions. It is usually determined as a percentage of the total cost of the property. Some municipalities, like Toronto, have also legislated land transfer taxes.

Goods and Service Tax

GST is charged on all new homes and condominiums, but if you pay less than $450,000 for a property than you may be eligible for a rebate.

Keep in mind that GST will also be charged on services related to closing costs like legal fees.

Legal Fees

Legal fees typically cost about 1.25 percent of the price of an average house. You’ll need to hire a lawyer to assist with the legal details of home ownership transfer, preparing all the mortgage documentation, and searching the title of the property.

Generally these fees are deducted from the mortgage loan itself.

Property Survey

Most lenders require an accurate survey of the property you are purchasing to ensure it’s in accordance with all relevant by-laws and zoning.

The sellers agent will often provide a copy of the survey but if not you will be required to provide one.  Surveys usually cost anywhere from $200 up to $1000.

As an alternative to a survey, the majority of lenders will accept proof of title insurance which will cost about $250.

House Insurance

Proof of insurance against fire and damage is usually required by the lender before or at closing before giving you the loan.  Try and shop around for a good policy.

While these fees may come as an afterthought for many home buyers caught up in the excitement of their purchase, they are critical to get squared away so your home buying experience is everything you wanted it to be – smooth.

Make sure when you are budgeting for your mortgage that you take these fees into account because they add up.

When you decide on a mortgage planner, they will be able to help you with understanding these fees better and hiring professionals to help make the details less stressful.

Your Next Step

FREE Email Course: Zero to Mortgage Pre-Approval
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Are you a potential first time homebuyer looking to get the keys to your first place? Well your first step is to get pre-approved for a mortgage.

How? I’ve put together a five-part free email class that spells it out, step-by-step. Sign up below: Each one gets delivered to your email inbox hot & fresh about every 3-4 days. It it you’ll learn:

  • Why you should get pre-approved now
  • The nuts and bolts of mortgage pre-approval
  • The documents you need to organize

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