bout de papier, Vol. 5, No. 2 (1987) — Summer 1987 // Été 1987, pp. 42–43
Prior to signing an Agreement of Purchase and Sale, most people calculate roughly what amount of cash they will have to come up with when the deal “closes.” In many instances, however, the calculation is inaccurate, leaving the purchaser scrambling for money a few days before closing. To help avoid this situation, I recommend that you consult your lawyer for a detailed estimate of all costs before arranging financing.
By using the following formula you can roughly calculate the amount you will be required to bring to your lawyer’s office the day of closing:
(NOTE: This example assumes a purchase
price of $125,000.00, high-ratio financing
that requires payment of a C.M.H.C. fee,
annual taxes of $1,600.00, fuel oil heating,
no available survey and a closing date of
October 15th. An explanation of fees and
rates where applicable is provided below.)
a. Purchase Price $125,000.00
b. Plus
(i) Land Transfer Tax 975.00
(ii) Legal Fees Purchase 1,000.00
(ill) Legal Fees Mortgage 150.00
(iv) Disbursements 150.00
(v) Mortgage Broker’s Fee 1,125.00
(vi) Appraisal Fee 200.00
(vii) C.M.H.C. Fee 2,250.00
(vili) Interest Adjustment 510.00
(ix) Survey 700.00
(x) lax Adjustment 334.00
(xi) Fuel Oil Adjustment 295.00
TOTAL COST $132,689.00
c. Less
(1) Mortgage Value $112,500.00
(ii) Deposit Paid 1,000
TOTAL CREDITS $113,500.00
b. Balance Payable by
Certified Cheque on
Closing $ 19,189.00
Of course not all transactions will have the same adjustments or fees. For example, if you are purchasing a condominium, there will be an adjustment for monthly common expenses paid by the vendor for the month in which you are closing (where you are purchasing after the first of the month but before the end of the month, so add that to your costs. In the example above, if there was a monthly common expense of $250.00 and you were closing on the 15th of the month after the vendor had paid all of October’s fee, you would have to add $125.00 to your costs.
Land Transfer Tax is the fee payable to the Treasurer of Ontario upon registration of a Transfer (Deed) in this province. The fee is based on a percentage of the purchase price of your home. Your lawyer will be able to give you the correct figure to plug into the formula.
Be certain that the legal fees quoted by your lawyer include all fees for the purchase and any mortgage work. The Carleton County Law Association has set out guidelines for legal fees in Real Estate transactions. Essentially, where the transaction is one of average complexity, the legal fee on the purchase should be in the neighbourhood of one percent (1.0%) of the first $75,000.00 of the purchase price and one-half of one percent (0.5%) of the balance. An additional fee may be charged for the mortage work.
Disbursements include the out of pocket expenses incurred by the lawyer in handling your transaction, such as fees for registration of the Transfer (Deed) and Charge (Mortgage), courrier expenses, photocopy expenses, obtaining zoning and tax certificates, excecution certificates, etc., BUT a lawyer is not entitled to charge as a disbursement fees he or she has paid to a third party to search title or close the transaction. A generous estimate of these disbursements is $150.00, but they will obviously vary to some extent depending on your particular case.
Mortgage broker’s fees will vary depending on the complexity of the work involved Be sure to ask your broker up front what all his or her fees will be. Normally they will be based on a percentage of the value of the mortgage they arrange on your behalf. The arrangements for payment of the appraisal fee will also be made through your broker or lending institution.
Where you are financing over 75% of the purchase price with one mortgage, a C.M.H.C. fee is payable. Often the broker will arrange to increase the value of the mortgage to include the C.M.H.C. fee, but this does not mean it can be deleted from the costs involved. It simply means you will get a higher mortgage advance on closing, that will increase the amount by which you may reduce the cash due on closing.
Mortgages normally begin on the first day of the month. In the event that your deal closes on any other day, the lender in effect loans you the money on the date you need it on an interest only basis. Your mortgage will actually commence on the first day of the following month, and your first payment will be due on the first day of the month after that, as mortgages, unlike rent, are always payable in arrears. The interest charged for the period between the date of your closing and the first day of the following month, is called : the “interest adjustment”, and will be deducted from the face value of the mortgage automatically. In other words, you pay up front for the interest on the loan until the actual mortgage starts. Therefore, you must take this interest figure into consideration in the formula. The interest is calculated at the same rate as the mortgage.
All mortgage companies require a survey. If one is not available, you can count on an additional cost of $700.00 on average.
All Agreements of Purchase and Sale are “subject to the usual adjustments”,, including adjustments for taxes, fuel oil, condominium common expenses, etc. If you know the annual taxes and are closing any time after June in any given year, you can assume the taxes for the whole year have probably been paid by the vendor. That being the case, you will have to reimburse the vendor on closing for the portion of the year’s taxes he has paid that are your responsibility from the date you become the owner. Even if all the taxes are not paid and instead of having to reimburse the vendor he must give you a credit, the unpaid portion for which you have received a credit will in many cases have to be paid in the near future anyway. Where the property is heated by fuel oil, the vendor must top up the oil tank prior to closing. In return for this, you must reimburse him on closing for a full tank of fuel oil.
In conclusion, I advise you to consult your lawyer with respect to the costs you will be faced with. Each Agreement is different, and the above is only meant to provide an example of what to look for when budgeting for the closing of your purchase.
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Originally published in bout de papier, Vol. 5, No. 2 (1987) — Summer 1987 // Été 1987, pp. 42–43. Read the rest of this issue →
