If you're preparing to buy a home, you may believe you've accounted for everything in your budget. But have you factored in all the fees associated with closing?

In a recent survey, many Canadian homebuyers reported being caught off guard by unexpected closing costs. Let’s break down these fees so your closing day goes as smoothly as possible.

1. First let's talk about High Ratio Mortgage Fees

For many homebuyers, High Ratio Mortgage HST on fees is a big surprise.

The actual High Ratio Insurance premium which is payable on mortgages that have less than 20% as downpayment equity, are required to insure the mortgage on behalf of the lender. The buyer pays that insurance premium which is added to the overall loan amount, however the HST tax on the insurance premium is due up front and may home buyers are unaware of this cost- it's a surprise.

Always ask your lender about the cost for the mortgage insurance premium, which will be dependent on the amount financed, but don't forget to ask about the tax due on that premium so that you can budget for it.

2. Appraisal Costs

An appraisal is a standard part of buying a home to ensure the property is worth the loan amount. Yet, many buyers are surprised to learn that the cost comes out of their pocket. In Canada, appraisal fees usually range between $350 and $600, depending on the property's size and location.

Check with your lender early in the process to understand whether you will be responsible for paying this fee directly.

3. Land Transfer Taxes

Land transfer taxes can vary widely depending on where you're buying in Canada. In Ontario, for example, you’ll pay a percentage of the home's purchase price, and if you're purchasing in Toronto, you'll face an additional municipal land transfer tax. First-time homebuyers in Ontario may be eligible for rebates, but many buyers are still surprised by how much this adds to their closing costs.

In 2024, Ontario’s land transfer tax is calculated at 0.5% to 2.5%, depending on the purchase price. Be sure to calculate this into your budget.

4. Title Insurance and Search Fees

Title insurance is an essential safeguard to protect buyers from potential legal issues with property ownership. However, for many Canadians, this is an unexpected cost at closing. Title search fees and insurance generally range between $200 and $500, depending on the provider and the province.

Though it may not be top of mind when budgeting, this protection is worth the investment and will help ensure a smooth transaction.

5. Higher Than Expected Closing Costs

Closing costs can include everything from legal fees to property taxes. According to Canadian real estate surveys, many buyers found that their closing costs were higher than anticipated. The average closing costs in Canada typically range from 3% to 5% of the home’s purchase price, though they can be more if additional services are required.

First-time buyers should be particularly cautious and ensure they get a full breakdown of estimated costs from their lender in advance.

How to Avoid Surprise Fees

Now that you know the costs that surprised Canadian buyers the most in 2024, here’s how to avoid unexpected expenses at closing:

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  Ask Questions Early: Speak with your lender and real estate agent upfront about all potential fees. The more information you gather, the better you can plan.

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  Get Multiple Quotes: Whether it’s for title insurance or legal services, shop around for the best rates.

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  Plan for a Buffer: Budget for a little more than you think you’ll need. Having a cushion for unexpected costs will make the closing process less stressful.

Buying a home is one of the biggest financial decisions you'll ever make. By understanding the potential hidden costs and preparing in advance, you can approach closing day confidently. Whether this is your first home or you’ve been through the process before, knowing what to expect will ensure you're financially ready for all aspects of the transaction.

Sources:

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  Government of Canada – Understanding Your Mortgage Costs

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  Ontario Ministry of Finance – Land Transfer Tax

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  CMHC (Canada Mortgage and Housing Corporation) – Guide to Mortgage Loan Insurance