How to Calculate Closing Costs in Ontario

By Jaswantee Ravi

Buying a home is the single biggest investment that most people make in their lives. It’s the culmination of years of hard work, extensive financial planning, and countless hours spent viewing potential properties. So naturally, when all of those steps are complete, and you finally sign your name on the dotted line, it can be quite a shock to learn that there are still additional payments to consider. 

While closing costs are nowhere near as significant as the actual price of an Ontario home, it’s still daunting to pay additional fees after you’ve emptied the entire piggy bank for the purchase. That’s why it’s necessary to account for these fees during your financial planning process. 

Here’s everything you need to know about real estate closing costs in Ontario.

What are closing costs?

Closing costs are any of the one-time fees that buyers need to pay to finalize the purchase process of a home. Depending on their municipality, the type of structure being purchased, additional legal documents, and a host of other factors, the buyer (and in some cases the seller) incurs additional fees that must be paid to “close” the deal. 

Given the skyrocketing home prices across the province, potential buyers must take the time to incorporate all these additional costs into their budget to avoid jeopardizing the finalization of a deal.

How much are closing costs in Ontario?

When buying a home in Ontario, calculating the closing costs is an integral part of the purchasing process that many buyers forget to include in their calculations. A general rule of thumb is to add 3-4% of the purchase price to your budget to ensure that you’re covering all requisite ancillary fees. 

To make the calculation process easier, many financial institutions and real estate firms now offer a closing cost calculator that incorporates all of the factors specific to your purchase location. Below is a list of both the requisite and potential closing costs that you’ll need to pay to close the deal on your new home.

Buyer expenses included in Ontario closing costs

When it comes to calculating your total real estate closing costs in the province of Ontario, there are a few major fees that you’re obligated to pay:

Land transfer tax - When buying a home in Ontario, the land transfer tax is one of the largest additional costs you need to consider. The party taking over the property incurs a transfer tax that is calculated based on the value of the property in question. Land transfer tax is generally the most expensive part of closing a deal, with costs potentially reaching $10,000.

Legal fees - Real estate lawyers are a requisite part of finalizing any home purchase in Ontario. The exact cost of these lawyers and real estate fees will vary depending on the nature of the firm and any additional documents necessary during the transaction. Government registration fees, drafting a buyer’s statement of adjustments, and facilitating the transfer of other documents are some of the actions your lawyer will conduct that contribute to your overall legal fees. 

Property insurance - To officially close a home sale, property insurance needs to be in place prior to finalization. While this is not a single-payment cost explicitly associated with closing, it needs to be accounted for when calculating your closing costs. 

Title insurance - In property law, a title refers to the legal documentation outlining who owns a home. While this is straightforward in most cases, financial lenders and firms require that you obtain insurance to cover any potential ownership disputes that may arise.

Situational closing costs 

The remaining contribution to your closing costs is determined by the specific home or strata that you’re looking to purchase. Depending on the property in question, you may need to account for some of the following fees:

Provincial sales tax on mortgage default insurance - For buyers who are unable to meet the typical  20% down payment benchmark, mortgage default insurance allows people to secure funding. Many provinces, including Ontario, require that you pay the provincial sales tax on the insurance.

Previous owner reimbursements - Unless you buy a new build, the previous owners will have paid tax and utility bills on the property. In some cases, you may need to reimburse them to a certain degree for these expenses. 

Condominium/strata fees - Estoppel certificate fees are a requisite expense when purchasing a unit within a condo or other multi-tenant building. These certificates are essentially a legal agreement between you and the condo board that outlines rules and infractions relevant to living in the building. 

Sales tax on new builds - If the home you intend to purchase is newly constructed, you’ll need to pay a sales tax on the final price and other closing costs. In Ontario, this closing fee falls under the Harmonized Sales Tax category. 

These are just a few of the additional fees you may need to pay as a part of your closing costs in Ontario. It’s also important to remember that there are costs associated with closing a mortgage. For instance, many lending institutions require that a property passes a professional home inspection, a fee that generally costs hundreds of dollars. There are also down payment deposits made to lending institutions to close a mortgage agreement. While these fees occur before you close on a home, it’s important that you also account for them when calculating your total closing costs.

Closing cost assistance

If you’re still asking yourself, “how much are closing costs in Ontario?” or are concerned that you may not have the financial means necessary to complete, there are still some options for you. If you’re a first-time buyer, the Canadian Mortgage and Housing Corporation offers an incentive that can reduce the financial burden of purchasing your first property. Expert financial firms can also help walk you through the buying process to ensure that you’ve taken advantage of all available resources.