Closing cost definition
Buyers Closing Cost Calculator Quebec
Purchase Information
Professional Fees & Insurance
Additional Moving Expenses (Optional)
Estimated Closing Costs
What are closing costs?
Closing costs are all the one time expenses you need to pay when you buy a property. These costs are in addition to your down payment. Closing costs include the legal, administrative and government fees required to officially transfer ownership from the seller to you.
You usually pay closing costs around the time you close, and they typically total between 3% and 5% of the purchase price. The table below shows how much you will need to pay for homes of different prices. For example, 5% on a property worth $450,000 is $22,500.
| Example Property Price | Estimated Closing Costs (3%) | Estimated Closing Costs (5%) |
|---|---|---|
| $350,000 | $10,500 | $17,500 |
| $400,000 | $12,000 | $20,000 |
| $450,000 | $13,500 | $22,500 |
| $500,000 | $15,000 | $25,000 |
As you can see, these are not insignificant amounts. So what exactly are you paying tens thousands of dollars in closing costs for?
What are the most common types of closing cost in Quebec
The most significant closing cost is the land transfer tax. Known as the welcome tax in Quebec, municipalities charge this duty on property transfers and calculate it as a percentage of either the purchase price or the property’s assessed value, whichever is higher. Notary fees also represent a significant closing cost. Generally, the Quebec real-estate process does not require you to hire lawyers.
Land transfer tax (welcome tax)
When you buy a property in Quebec, you must pay land transfer tax. Municipalities charge this duty whenever a property transaction takes place. The way it works is, you will first sign the deed of sale that marks the completion of the transaction. The notary that you hire to prepare the closing documents will then update the Quebec Land Register to reflect the details of the transaction. Once the notary has updated the land register, the relevant municipality gets automatically notified about the details of your transaction. The municipality will then calculate how much land transfer tax you owe and send you an invoice within 90 days of your home purchase.
Land transfer tax is a progressive tax that municipalities calculate based on the higher of the property’s purchase price or assessed value. This means the municipality will tax different portions of the property’s value at different rates, with higher rates applied to higher portions. In Quebec, each municipality must apply the minimum land transfer tax rates set by the provincial government. Municipalities may then impose higher rates and add additional brackets, which is why land transfer tax varies significantly from one city to another.
Notary
In Quebec, the buyer normally hires and pays for the notary. This is because it is the notary’s job to verify that the seller has clear title (ownership) to the property and the legal right to sell it. As this is in the interest of the buyer, it makes sense that the buyer should pay for the notary. In addition to this, the buyer has already agreed in Clause 7.3 of the promise to purchase that they will pay to prepare and register the deed of sale. The notary typically does this work and this is another reason why it makes sense that the buyer would pay for the notary.
Other types of closing cost
In addition to the common types of closing costs, there are also several other closing costs that normally show up in the transaction. These include:
Let’s take a quick look at each of these closing costs now.
Pre-purchase inspection
The pre-purchase inspection is a professional evaluation of a property’s condition. The home inspection identifies potential issues or defects before you take ownership of the property. Clause 8 of the promise to purchase lets you choose whether to have the home inspected before taking ownership.
You should strongly consider this option because, in Quebec, if you discover a latent defect, or “hidden defect”, in your property after taking ownership, the seller must pay for the repair work. However, an issue qualifies as a hidden defect only if a reasonable inspection before closing could not have uncovered it.
In certain parts of Quebec, you must order specialist tests that general home inspections do not cover. This includes tests for pyrite. If you skip these specialist tests, you risk paying for any repairs yourself, because issues discovered later may not qualify as latent defects under the law.
Consult with your realtor to find out what type of inspection you need to get. Note, the OACIQ (the real-estate brokers regulator) requires that all brokers recommend you to get at least the basic home inspection prior to purchasing the home.
Appraisal fees
Mortgage lenders often require a home appraisal to confirm that the purchase price of the home is reasonable and to determine how much money they are willing to lend. Your lender may arrange the appraisal and will pay for it themselves because they will want to bring you on as a new client. For this reason, we would highly recommend asking your lender to waive an appraisal fee. In many cases, the buyer will not even know that the appraisal is happening, the lender will just organize it without their knowledge.
Title insurance
Every property has a title, which is the legal document proving ownership and describing the rights associated with the property. When you buy a property from someone else, the title transfers to your name, officially making you the new legal owner. Issues can arise with a property title. For example, there could be outstanding liens, unpaid property taxes, easements, or disputes over property boundaries that may affect your ownership or use of the property. The notary normally flags these issues during closing. However, if the notary misses any problems or fails to address them properly, the buyer could face legal or financial complications even after completing the sale. For this reason, many lenders will often require that a buyer gets title insurance.
Latent defect insurance
As we have seen, a latent defect is a hidden flaw in a property that you could not reasonably discover at the time of purchase. These defects are usually structural or major issues that affect the safety, stability, or usability of the home and could be very expensive to repair. Latent defect insurance is a type of coverage that protects a homebuyer (and sometimes the lender) against costs that arise from hidden defects.
In Quebec, sellers must pay for repairs caused by latent defects. However, they may not automatically accept responsibility and could decide to challenge the claim in court. In this case, latent defect insurance can help cover legal fees if disputes arise. Latent defect insurance can help cover legal fees in such disputes and also pay for repairs if the seller is unable to do so.
Closing costs that are specific to some buyers
The following closing costs are specific to certain types of home buyers.
GST/QST on new or substantially renovated homes
In Quebec, you must pay a sales tax whenever you buy a newly built or substantially renovated home. The sales tax consists of a federal portion and a provincial portion. The federal portion is the Goods and Services Tax (GST), and Quebec charges the provincial portion as the Quebec Sales Tax (QST).
For example, if you buy a home for $400,000, you must pay 5% in GST and 9.975% in QST, for a combined tax rate of 14.975%. This adds $59,900 to your closing costs. You or your buyers broker should have entered any GST or QST into Clause 4 of the promise to purchase.
If the property costs less than $450,000, then you may be eligible for the GST/QST new housing rebate. This allows you to claim back up to 36% of the GST paid, to a maximum rebate of $6,300 and up to 50% of the QST paid, to a maximum rebate of $9,975.
CMHC mortgage insurance
If you plan to buy a home with less than 20% down payment, then you must pay for CMHC mortgage insurance. Alternatively, you are able to buy mortgage default insurance from private insurers Sagen or Canada Guaranty.
Your lender adds the insurance premium to your mortgage principal, and you repay it over the life of the mortgage through your regular mortgage payments. You must pay only the sales tax on the insurance premium upfront, which is why this closing cost calculator includes only the tax portion as a closing cost. In Quebec, this includes federal sales tax and provincial sales tax.
The closing cost associated with the CMHC mortgage insurance depends the type of property, and what you plan to do with the property, as well as the amount you are borrowing (your loan-to-value ratio). To work out what your CMHC closing costs will be, you need to therefore consult the CMHC insurance premiums. The CMHC offers Eco Improvement and Eco Plus programs that allow you to get up to 25% cash back on your insurance premium when you either buy or make energy efficient upgrades to your home.
Property tax adjustments
If you are buying a resale home, the current owner will likely have paid property taxes for the year. Unless you take ownership of the property on exactly the day when the property taxes are due, you will likely need to reimburse a portion of the tax to the previous property owner at closing.
The notary will calculate the property tax adjustments for you and share the amount that you must pay ahead of closing. However, you can also work this out yourself by dividing the annual property tax bill by 365 days and multiplying it by the number of days from the closing date to the end of the tax period.
Interest rate adjustments
Unlike renting, most lenders will charge you the interest plus principal that you owe at the start of the month. This means that, unless you take ownership on exactly the day when you expect to pay the mortgage, you will have to pay an interest adjustment at closing to cover the days between closing and your first scheduled mortgage payment.
For example, let’s say that you buy a property on July 16th but, your first mortgage payment is not due until 27th July. In this case, interest will start accruing immediately, and you will need to pay the interest that accumulates between July 16th and July 27th as an interest adjustment at closing. Your first regular mortgage payment on July 27th will then cover the interest and principal from that day onward.
Other closing costs to consider
While some costs do not officially form part of your closing costs, you must still budget for them when buying a new home. These costs may include:
- Moving costs (normally somewhere between $750 – $1,500)
- Condo fees
- Expenses related to new furniture or appliances
- Home insurance
- Utilities setup (such as internet, electricity, etc.)
- Repairs and maintenance
Final remarks
Closing costs add tens of thousands of dollars to almost every property transaction. What makes them so difficult to budget for is that they are variable, depending on the property value, the type of property, the municipality that you buy in and so on.
Most realtors will tell you to budget between 2 – 4% of your purchase price for the closing costs. However, it does help to understand what the costs are for, since closing costs come at different times. Knowing what to expect ensures that you don’t forget to budget for something.
Lastly, we wanted to make some quick mention of ways that you can reduce your closing costs. These include several federal, provincial and municipal financial incentives that give first time and experienced buyers tax rebates on certain closing costs. For instance, Montreal offers the Home Purchase Assistance Program for first time and experienced buyers. This program can allow you to claim up to $15,000 back on the purchase of your home. There is also the GST/QST new house tax rebate, that can allow you to claim back a large part of the tax paid when you buy new or substantially renovated homes.
