Mortgages, financing, closing and transaction costs
This domain tests how a purchase is financed and what the buyer actually pays to close. Questions target mortgage structure, insured lending rules and the stress test, land transfer tax tiers and rebates, and the long list of closing costs on a typical transaction.
Mortgage basics
An Ontario mortgage is a charge registered against title. Distinguish term from amortization, fixed from variable rate, open from closed, and insured (high-ratio) from conventional. Insured mortgages are backed by CMHC, Sagen or Canada Guaranty and must meet federal rules: 5% down on the first $500,000, 10% on the portion up to $1,500,000, and 20% above that, with a purchase price cap of $1,500,000 effective December 15, 2024. Federally regulated lenders apply the stress test - qualify at the contract rate or 5.25%, whichever is higher - and insured files are underwritten to roughly 39% GDS and 44% TDS.
Land transfer tax
Ontario's land transfer tax is tiered: 0.5% to $55,000; 1% to $250,000; 1.5% to $400,000; 2% to $2,000,000; 2.5% above that for residential. The City of Toronto adds a municipal tax on the same tiers. First-time buyers receive a provincial rebate of up to $4,000 and a Toronto rebate of up to $4,475. The Non-Resident Speculation Tax adds 25% in specified regions.
Worked example
An $800,000 Toronto resale bought by a first-time buyer: provincial tax is $275 + $1,950 + $2,250 + $8,000 = $12,475, and the Toronto tax is $12,475. Rebates of $4,000 and $4,475 reduce the total from $24,950 to $16,475.
Other closing costs
Legal fees and disbursements, title insurance, registration, adjustments for prepaid taxes and utilities, status certificate fee, home inspection, appraisal, mortgage insurance premium, and HST on new homes with the new housing rebate; new homes also carry Tarion coverage.
Traps
- Applying first-time rebates to an ineligible buyer or property.
- Forgetting Toronto's second land transfer tax.
- Quoting a payment without the stress-test rate.