Understanding the costs of buying, selling, and refinancing a home in Canada

When buying, selling or refinancing a home, closing costs are an inevitable part of the process. These costs can catch you by surprise if you’re not adequately prepared. Let’s demystify the closing costs and give you an idea of the potential costs involved.

What are closing costs in a real estate transaction?
Closing costs are the fees and expenses that must be paid when a transaction is finalized. They encompass a wide range of charges depending on which side of the transaction you are on. Some of these costs will be incurred by either the buyer, the seller, or both parties, or in the case of a refinance, by the home owner. Typically, closing costs can range from 1.5% to 4% of the purchase price of a home for buyers, depending on the specifics of the transaction and location within Canada, and for a refinance it can be as little as a couple thousand dollars, which you may be able to add to the balance of your loan so you have no out of pocket expenses.  In Saskatchewan we generally use 1.5% to estimate closing costs.  

Common closing costs when buying a home

• Land transfer tax: This tax varies by province and municipality. It is calculated based on the purchase price of the property. Saskatchewan does not charge land transfer taxes.
  Potential cost: a few hundred to thousands of dollars.
• Legal fees: These cover the services of a real estate lawyer or notary who will handle the legal aspects of the transaction. These fees may include title searches, title registration, and the preparation of necessary documents. 
  Potential cost: $1,500 to $3,000 or more
• Title insurance: This one-time cost protects against potential issues with the property’s title, such as disputes over ownership. Typically required by lenders for their protection at your cost, homeowners can get an add on to protect themselves as well. 
  Potential cost: $150 to $500 or more
• Property appraisal: Conventional or lower loan-to-value mortgages may require an appraisal to determine the fair market value. In rural Saskatchewan you can expect to pay travel costs to the appraiser in addition to the appraisal cost.
  Potential cost: $300 to $600 or more
• Home inspection: Although optional, a home inspection is highly recommended to identify any potential issues with the property.
  Potential cost: $500 to $800 or more
• Property tax adjustments: Depending on when your home purchase closes, you may need to reimburse the seller for any property taxes already paid. Alternatively, you may receive a credit from the seller for any property taxes that have not been paid for the year.  
• Mortgage default insurance: If your down payment is less than 20% of the purchase price, you’ll need mortgage default insurance. This can cost between 2.8% and 4% of the mortgage amount. This insurance can be added to your mortgage balance. Ontario, Quebec and Saskatchewan also charge provincial sales tax on this insurance, which must be paid at closing.
  

Common closing costs when selling a home

• Real estate commissions: The seller typically pays the commission for both the buyer’s and seller’s Realtor, usually between 3% and 5% of the sale price plus any applicable taxes, such as GST/HST.
• Legal fees: These cover the services of a real estate lawyer or notary who will verify the legal ownership of the property and clear any liens or charges against the title.
  Potential cost: $1,000 to $3,000 or more
• Mortgage discharge fees: Charged by your lender to close out your mortgage.
  Potential cost: $200 to $500
• Mortgage pre-payment charges:  Depending on when your mortgage term is up, you may incur pre-payment penalties.
  Potential cost: 3-months’ interest or the Interest Rate Differential (IRD)
• Repairs and maintenance: Any agreed-upon repairs or maintenance to be completed before the sale.
  

Closing costs when refinancing a home

• Appraisal fees: The lender will require an appraisal to determine the fair market value.
  Potential cost: $300 to $600 or more
• Legal fees: These cover the services of a real estate lawyer or notary who will verify the legal ownership of the property and register the new mortgage.
  Potential cost: $1,000 to $3,000 or more
• Mortgage discharge fees: Charged by the current lender to close out the existing mortgage.
  Potential cost: $200 to $500
• Title insurance: This may be required  by your new lender  to protect against title-related issues during refinancing. 
  Potential cost: $150 to $500 or more
• Mortgage pre-payment charges: If breaking the existing mortgage term, you may be charged pre-payment penalties of three months’ interest or the Interest Rate Differential (IRD) depending on your original mortgage terms.
  

Get expert help today

Understanding closing costs in any real estate transaction is crucial. By anticipating these expenses and budgeting accordingly, you can avoid financial surprises.

Get in touch with me today for personalized advice and support with your next real estate transaction! I work with some exceptional professionals and can connect you with a Realtor, lawyer, notary, or inspector in your area to help determine the specific costs tailored to your situation.

Mia Hollinger
Mortgage Associate
(306) 291-3817
mia@mortgagesbymia.ca