The Breakdown on Mortgage Costs in Canada - How to Calculate Closing & Total Monthly Costs
Any mortgage calculator can whip up estimated monthly mortgage payments
but what is often left as a surprise with many future homeowners is the addition of one-time closing and total recurring monthly costs in which the latter can account for approximately 40% of the monthly mortgage costs!
Most mortgages in Canada are in the $300,000-$500,000 total so let’s take an example of where your total costs might sit as we take into account the full picture of costs you should be budgeting for.
Total Monthly Costs Example on a $451,000 Mortgage
Recently, I did an estimate of monthly costs for a young couple looking to put down 5% on a home which equated to borrowing $451,000 on their mortgage. Below is the breakdown of all-in costs they could expect on a 2.09% fixed and 1.99% variable rate. As you can see in both scenarios, there is about $800/month in costs that are missed if you don’t take into account all other fees.
FIXED-RATE MORTGAGE: 2.09% ON A 5-YEAR TERM AND 25-YEAR AMORTIZATION:
Monthly Mortgage Costs: $2006.58/month
Total Monthly Cost: ~$2,8055.58 (including other monthly costs)
VARIABLE RATE MORTGAGE: 2.00% VARIABLE ON A 5-YEAR TERM AND 25-YEAR AMORTIZATION:
Monthly Mortgage Costs: $1,986.16/month
Total Monthly Cost: ~$2,985.16 (including other monthly costs)
Additional Monthly Costs
CMHC insurance = ~$77: If you put less than 20% down on a property, you must pay a mortgage default insurance premium which ranges from 2.8%-4% depending on the size of your down payment. It is paid monthly throughout the entire lifetime of your mortgage.
Strata Fees = ~$317: On a condo or townhouse these fees can increase heavily over time and there may be special levies, that is, hefty one-time costs for renovations or major fixes so make sure to hold your realtor accountable to reading Strata meeting notes.
Property Taxes = ~$160: Property taxes are due every July and typically range between $1800-$3200 a year depending on certain factors, namely the ones below:
Property classification
Property assessed value
Cost of services
Property location
Electric & Hydro = ~$145: Your heating costs can range on use but this is a fairly accurate estimate to account for.
Internet = ~$100: If you can get a student deal or you’re a good negotiator, this can vary of course.
Home Insurance = ~$200: If you want a good one, you’re looking at this price. Some will go as low as just under $85 for the most basic one.
Closing Costs
Closing costs are typically 1.5% of your home value and lenders always want to see this amount set aside in your bank account before they even loan to you so please, make sure you do the math early!
These “last-minute costs” include things such as taxes, legal fees, appraisal fees, and home insurance. You must be prepared to pay most, and perhaps all, of the following closing costs.
Property Transfer Tax (PTT) ($8000 on a $500,000 home) – The British Columbia Provincial Government imposes a property transfer tax, which must be paid before any home can be legally transferred to a new owner. The tax is charged at a rate of 1% on the first $200,000 of the purchase price and 2% on the remainder up to and including $2 million. The PTT is 3% on amounts greater than $2 million. Some buyers may be exempt from this tax and if you’re a first-time buyer, make sure to see if you qualify for this subsidy.
Goods & Services Tax (5% of home value) – If you purchase a newly constructed home, you may be subject to 5% GST on the purchase price. There may be some rebates available depending on the value of the home. For further information, contact the Canada Revenue Agency at www.cra-arc.gc.ca
Property Tax (~$1800-$6000) – In addition to the aforementioned explanation on PTT, If the current owners have already paid the full year’s property taxes to the municipality, you will have to reimburse them for your share of the year’s taxes. Usually, the calculation is $2.90 per $1000 of taxable home value. These are usually due in July. Have your real estate lawyer investigate this.
Legal Fees (~$1000) – The transfer of home ownership from the seller to the buyer must be recorded in the Land Title and Survey Authority Office in order to protect the new owner’s interests. You will probably want to engage a lawyer or notary public to act on your behalf during the completion of your purchase. The lawyer or notary public will charge a fee for this service, plus disbursements, including the Land Title Registration fee - contact me if you need a recommendation in BC or Ontario.
Appraisal Fee (~$350) – When the lending institution requires an appraisal of the home before approving your loan, it may be your responsibility to pay the appraiser’s fee. This typically happens when your down payment is over 20% and thus, you don’t have a mortgage insurer to cover this for you.
Title Insurance (~$150) – In its simplest form, title insurance protects the lender and homeowner against a number of risks related to the property’s title or ownership. With identity theft on the rise, it is not difficult for a fraudster to obtain legitimate identification claiming to be the true owner. The fraudster then deals with realtors and lawyers as if they were the owner, and proceeds to sell the property. Alternatively, the fraudster may work with a lender or mortgage broker, again with identification, to place a new mortgage on the property. In either situation, the true owner is unaware of the fraud and the fraudster takes off with the sale or mortgage funds.
Other last-minute costs you shouldn’t forget to set some money aside for:
home inspection fees
water and waste charges on certain homes
alarm monitoring system
cable tv costs
Gas costs (e.g Fortis BC)
moving expenses
deposits required by utility companies
household goods, like appliances and other equipment
redecorating or renovations
THE BOTTOM LINE
Just like you wouldn’t like the surprise of seeing that you forgot to pack enough food and budget enough money for the last four days of that ten-day vacation you might take once COVID-19 blows over, you especially do not want to forget about 40% of the additional monthly costs to your monthly. Be smart and investigate with your mortgage broker and realtor what these costs will be and make sure you consider that as you look to lock in your mortgage.