Closing Costs (Ontario)

Closing costs are the expenses a buyer (and seller) incur to complete a real estate transaction — amounts payable at closing beyond the purchase price itself. In Ontario, closing costs can be substantial and must be budgeted in advance. Failing to account for closing costs is a common mistake among first-time buyers.

For a typical Ontario residential buyer, total closing costs range from 1.5% to 4% of the purchase price. For a $800,000 purchase, this means $12,000 to $32,000 in costs on top of the purchase price. In Toronto, where municipal land transfer tax applies in addition to provincial LTT, closing costs are significantly higher.

The buyer's real estate lawyer prepares a statement of adjustments before closing — a document that shows all amounts due from the buyer and all credits, resulting in a net amount the buyer must pay to complete the transaction. This statement of adjustments is provided a few days before closing so the buyer can arrange the necessary funds (typically by certified cheque or bank draft, or increasingly by wire transfer).

The major closing costs for a buyer in Ontario include:

1. Land Transfer Tax (LTT): The largest single closing cost for most Ontario buyers. Provincial LTT is calculated on a graduated scale from 0.5% to 2.5% of the purchase price. Toronto buyers pay a second municipal LTT of equal amount. On a $900,000 purchase in Toronto, combined LTT is approximately $28,950. First-time buyers may qualify for provincial and municipal refunds.

2. Legal Fees and Disbursements: Retaining a real estate lawyer is essential in Ontario. Legal fees for a residential purchase typically range from $1,200 to $2,500 depending on complexity. Disbursements (title search fees, registration fees, courier, photocopying) typically add $300 to $800. Total legal costs are often $1,500 to $3,000.

3. Title Insurance: A one-time premium paid at closing. Owner's policy: approximately $200–$400. Lender's policy (required by the mortgage lender): approximately $100–$200. Total title insurance: typically $300–$600.

4. Home Inspection Fee: Pre-closing home inspection typically costs $400–$800 depending on the size and type of property. Paid directly to the inspector before or after the inspection.

5. Property Tax Adjustments: The statement of adjustments includes a credit or charge for property taxes. If the seller has prepaid taxes for the period after closing, the buyer credits the seller. If taxes are in arrears for the period before closing, the seller pays the buyer.

6. Utility and Condo Fee Adjustments: Similar adjustments for prepaid utility bills and condominium maintenance fees.

7. Mortgage Default Insurance (CMHC): If the buyer's down payment is less than 20%, the mortgage is a 'high-ratio' mortgage and mortgage default insurance is required from CMHC, Sagen, or Canada Guaranty. The premium ranges from 2.8% to 4% of the insured mortgage amount and is typically added to the mortgage balance (not paid in cash at closing, but it increases the mortgage).

8. Status Certificate Review (Condos): For condominium purchases, the buyer's lawyer should review the status certificate. Lawyers typically charge $150–$350 for this review, sometimes included in their general closing fee.

9. Moving Costs: Not a legal closing cost but a real expense — professional movers typically cost $1,000–$5,000 for local moves.

10. HST on New Homes: Purchases of newly constructed residential properties from builders are subject to HST (13%). However, the Federal New Home Rebate and the Ontario New Home Rebate reduce the effective HST for homes purchased as a primary residence. Buyers should confirm with their lawyer and the builder how HST is treated in the purchase agreement.

Sellers also incur closing costs, though typically lower than the buyer's:

1. Real Estate Commission: The largest seller cost — typically 3.5% to 5% of the purchase price (negotiated with the listing agent). On an $800,000 sale, commission of 4% is $32,000 plus HST ($41,600 total including HST). This is the single largest transaction cost in most real estate sales.

2. Legal Fees and Disbursements: A seller's real estate lawyer typically charges $800 to $1,500 plus disbursements for handling the sale, discharging the mortgage, and completing the closing.

3. Mortgage Discharge Fees: If the seller has an existing mortgage, there are administrative fees for obtaining and registering a discharge: typically $200–$400 in legal costs plus any penalty the lender charges for early repayment if the mortgage is not portable or assumable. Mortgage prepayment penalties can be significant — on a fixed-rate mortgage, the penalty is the greater of three months' interest or the interest rate differential (IRD), which can be tens of thousands of dollars.

4. Certificate of Discharge and Writ Clearance: Fees for obtaining clearance of any writs of execution registered against the seller's name on the PPSA/judgment register — typically included in the lawyer's fees.

5. HST on Commission: The real estate commission is subject to HST. If the listing agent's commission is $25,000, the seller also pays $3,250 in HST on the commission.

6. Moving Costs: Professional movers for the seller's relocation.

7. Capital Gains Tax: If the property is not the seller's principal residence, any capital gain on the sale is subject to income tax. The principal residence exemption eliminates capital gains tax on the seller's primary home for each year it was the principal residence.

The statement of adjustments is the financial document prepared by the buyer's and seller's lawyers that calculates the exact amount needed to close the transaction. It includes:

Credits to the buyer: - The purchase price (the amount to be paid) - Any adjustments for prepaid property taxes (if the seller has paid taxes beyond the closing date) - Any deposits already paid - Adjustments for any utilities or condo fees prepaid by the seller

Debits to the buyer: - The mortgage amount (funded by the lender directly) - Land transfer tax - Legal fees and disbursements - Title insurance - Other closing adjustments

The statement of adjustments results in a net amount the buyer must bring to closing — typically by wire transfer or certified cheque delivered to the lawyer one or two days before closing.

For condominiums, the statement of adjustments also includes occupancy fees (if the buyer took occupancy before registration) and any outstanding condominium fee arrears.

Buyers should review the draft statement of adjustments carefully and ask their lawyer to explain any items they do not understand. Errors in the statement — while uncommon — do occur.

Buyers should budget for closing costs in advance as a separate line item from their down payment:

Provincial only (non-Toronto) buyers: Budget 1.5% to 2.5% of the purchase price for closing costs Toronto buyers: Budget 2.5% to 4% of the purchase price for closing costs (due to double LTT) First-time buyers: Deduct the applicable LTT refund(s) from the estimate

Practical tips: - Ask your real estate lawyer for a closing cost estimate early in the transaction process — most will provide a detailed breakdown before you sign any agreement - Do not include moving costs, renovation expenses, or appliance purchases in your down payment calculation — these are real cash needs at closing that can strain finances - Confirm with your mortgage broker or banker whether CMHC insurance is required and how the premium is handled — adding the premium to the mortgage balance increases monthly payments - For Toronto condo purchases, budget for the status certificate review fee separately

Raj is buying his first home in Etobicoke (City of Toronto) — a semi-detached house for $1,050,000. He has a 20% down payment ($210,000) so no CMHC insurance is required.

Raj's closing costs:

Provincial LTT: $18,475 Toronto Municipal LTT: $18,475 First-time buyer refund — Provincial: ($4,000) First-time buyer refund — Toronto: ($4,475) Net LTT: $28,475

Legal fees and disbursements: $2,200 Title insurance (owner's + lender's): $550 Home inspection: $600 Property tax adjustment (credit to seller for prepaid taxes): $800

Total closing costs: approximately $32,625

Raj needs $210,000 (down payment) + $32,625 (closing costs) = $242,625 in total cash at closing, plus funds for moving ($2,000) and immediate home improvements ($10,000) — bringing his total cash requirement to approximately $254,625.

Had Raj been buying in Mississauga instead of Toronto, his LTT would be $18,475 (no municipal LTT) minus the $4,000 first-time buyer refund = $14,475 — saving him approximately $14,000 in LTT alone.