We are all familiar with the phrase “in life there are only two guarantees: death and taxes”. In the case of a home purchase, you are guaranteed three things, or taxes, rather. The three categories of real estate taxes for which you are responsible are land transfer tax, property tax, and CMHC insurance tax.
Land transfer tax, sometimes referred to as Land Transfer Fees or Property Transfer Tax, is paid when property ownership changes hands. The tax is levied at the provincial level, except in Toronto, which also levies an additional tax at the municipal level. The tax amount varies by province but generally falls within 0.5% – 2.0% of the property’s value. The provinces of Ontario, British Columbia and Prince Edward Island, and the city of Toronto, however, offer land transfer tax rebates for first-time home buyers.
Please refer to a land transfer tax calculator to determine your exact cost.
Property taxes are annual fees set by the municipal government, which means tax rates differ from city to city. They can easily amount to thousands of dollars, so some governments allow instalment plans to make payments more manageable. Some lending institutions also offer payment plans whereby property taxes can be added on top of your regularly scheduled mortgage payments.
If your annual property taxes are $4,800 and your monthly mortgage payments are $3000, a lender may let you adjust your payment to cover the cost of your property taxes split over the course of 12 months. Since $4800 divided by 12 months is $400, then your new monthly mortgage payment should be $3400.
A lender will likely set-up a separate chequing account and pay the municipality on your behalf.
It is mandatory for home buyers to acquire mortgage default insurance (CMHC insurance) when purchasing a property with less than a 20% down payment. The insurance premium typically ranges from 1.75% to 2.95% of the total loan, but can exceed that amount in certain cases. The cost of the insurance is rolled into your mortgage; however, Ontario and Quebec requires the homebuyer to pay the PST on the CMHC insurance at closing.