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Costs to expect when obtaining a new mortgage or refinancing an existing mortgage in Canada.

 

There are costs associated with applying for a mortgage or refinancing an existing mortgage. Keep yourself informed so you can make better and smarter decisions when dealing with mortgage applications and renewals.

• Lender's Commission / Loan Origination Fee - This is one of the biggest differences between going with the top five banks or private lenders. If you obtain a mortgage with the top five banks (RBC, TD, BNS, BMO, or CIBC), you won't see this charge. Private lenders will often charge a commission of somewhere between 1-2%. This is sometimes part of or referred to as the "Finder's Fee" - the service fee for your mortgage broker charge in order to find a suitable lender for you. This means, if you go with a private lender for a $1 million dollar mortgage, you would be charged with $10,000 to $20,000 as the service commission to the lender/mortgage broker. This is exactly why if you can go with the top 5 big banks, do so.
• Application Fee - This is the fees your lenders will charge to cover the cost of underwriting, conducting credit reports, coordinating with home inspectors and appraisers, and performing some other administrative tasks on your mortgage application. This can sometimes be waived with private lenders (since they already make quite a bit on service commission) so make sure you ask. This can be in the range between $1,000 and $2,000.
• Title Insurance Fee - This is the fee paid to a title insurance company to cover the cost of transferring the title on the property between the Seller and Buyer of the property. This usually costs around $250
• Home Inspection Fee - Some lenders may require home inspection reports on the property. If this is the case the lenders usually have a list of home inspectors they work with. The cost is usually around $250
• Home Appraisal Fee - Most lenders require home appraisal reports on the property, and they usually have a list of appraisers they work with. The cost is usually around $500
• Status Certificate Application Fee - If you are purchasing a condo unit, most lenders will require the most recent Status Certificate from the condo corporation to verify the condo's financial status. Applying for a Status Certificate with the condo corporation will cost you around $150
• Prepayment Penalty - If you are refinancing a mortgage and terminating your current mortgage contract early, you will need to pay your current mortgage lender a prepayment penalty. The amount varies depending on your original mortgage contract with the current lender. It is a good practice to ask your current lender to provide you with an estimate on the penalty before engaging with your new lender. So that refinancing makes sense financially for you.

The costs breakdown associated with applying for a new mortgage or refinancing an existing mortgage need to be disclosed to the borrower as per regulations in Canada. So make sure you go through and pay close attention to the documents provided by your mortgage agent before signing anything. The largest unexpected costs are often the lender's commission and prepayment penalty. Make sure you clarify all the costs with your mortgage agent - they are legally required and obligated to inform you of every detail regarding your application.

In addition to the costs associated with a getting or renewing a mortgage as described above, homeowners, especially new homeowners, also need to be mindful of the following cost associated with buying a property in Canada.

Land Transfer Tax – New homeowners will be obligated to pay this tax to the provincial and municipal governments. The amount is approximately 3.5% and will fluctuate between different municipalities and provinces. For example, if you are purchasing a $1.25 million dollar home in Ontario, Canada, the total Land Transfer Tax is around $42,950. Yes, that is a significant amount so make sure you budget for that when purchasing a property. With that said, keep in mind that some cities or provinces offer tax rebates for first-time homebuyers.

Legal Fees – You will need a lawyer to represent you and communicate with the Seller’s lawyer and the lender’s lawyer. And the lawyer fee is typically calculated based on the value of the property. The formula is:

• On the first $100,000 = $850
• On excess between $100,000 to $300,000 = an additional 0.5% on the amount
• On excess over $300,000 = an additional 0.25%

Therefore, if you are purchasing a $1.25 million dollar property, you are looking at legal fees at approximately $850 + ($200,000 * 0.5%) + ($950,000 * 0.25%) = $4,225

New Account Setup Fees – Homeowners are usually required to have active utilities and insurance on the property as per the mortgage contract. And there may be account fees charged by your utilities or insurance companies.

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