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Finally, you’ve decided that being a homeowner is an important priority in your life. While doing the research and finding out the many different expenses involved in getting your dream house, you realize that it’s not just the price tag on your dream house you’re going to have to actually pay for.
Whether you’re trying to buy a home in Ontario or anywhere else in Canada, it helps to know exactly how much you expect to shell out to become a homeowner. Let’s walk you through all the one-time and ongoing costs involved in buying a house.
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Down Payment
Whether it’s your first house or not, the minimum down payment in Canada is 5% of the home purchase price for homes of $500,000 or less. Here’s how that shakes out, and how the minimum changes as the price goes higher:
Mortgage Default Insurance
The Canada Mortgage and Housing Corporation charges a 2.8% - 4% premium if your initial down payment is lower than 20%. The mortgage default insurance must be paid either in a lumpsum or added to the overall mortgage. It protects lenders in the event the borrower stops making payments and defaults on their mortgage loan. This allows Canadians to afford lower down payments without having to deal with significantly higher mortgage rates because the risk of default is taken on by the insurer instead of the lender.
By using this CMHC mortgage insurance calculator, you can see that a 5% down payment means you’d be paying an additional 4% of your mortgage amount. In certain Canadian provinces as well, you will also be paying an additional Provincial Sales Tax that is automatically included by the calculator.
Closing Costs
Closing costs are the last flurry of fees you have to pay for when you’re about done paying for your mortgage. These include: land transfer tax, legal fees, home insurance, home inspection, property appraisal fees, title insurance, government registration fees, and estoppel certificate fees. These amount to an additional 3% to 4% of your home costs.
To calculate your Land Transfer Tax, this handy calculator does it for you. Determining the land transfer tax amount is based on the home price, The number you get is based on how much it costs, but if you’re a first-time home buyer in British Columbia or Ontario, you get a rebate to some or all of the land transfer tax.
How about moving costs? Taking your stuff from wherever you were staying to your new house probably won’t be free. There are also utility setup costs that you need to consider once you move into your new home.
Monthly Mortgage
With the one-time costs out of the way, you now have to consider the ongoing costs you have to pay for on a monthly basis. The majority of these costs will be related to your monthly mortgage which is split up into two parts: principal, the amount of money paying down the total balance of our mortgage, and interest payments, the amount owed in return of the bank lending you the money.
Other Ongoing Costs
Finally, to go along with your mortgage, you’d also expect to pay for several other monthly costs as well. You pay for home insurance to protect yourself from losses and damages to your house and your belongings. You also pay for your utilities: your electricity and water bills, coupled with your internet connection and phone line. To pay for city services such as police, the fire department, public transport, as well as elementary and secondary education, you also need to pay for property taxes. Lastly, to make sure things are running in tip-top shape in the household, property maintenance costs need to be paid from time to time.
Sample Calculations
Let’s say you found your dream house in Sault Ste.Marie, and it’s available at $300,000. You check your savings, find that you have enough money for a 5% down payment, and are approved for a mortgage from the bank. Let’s take a look at what your one-time costs are going to look like:
That’s a manageable amount of money to save up for, and the closing costs don’t even figure into the equation until after you’re done paying for the mortgage. Next, let’s take a look at your monthly ongoing payments, assuming we set a 25-year amortization period in a fixed 5-year term. Let’s assume that we got a 3.64% interest rate for this one.
Every month, without considering maintenance costs for a single detached house worth $300,000 in Sault Ste. Marie, your monthly ongoing costs will amount to $2,057. There’s a good chance your monthly rent payments are higher than this..
Buying a house is no mean feat, and your first home is always a milestone. With just the right amount of planning and savings, you’d be ready to achieve your home ownership dreams quicker than you realize.
