Did You Know About These Fees to Budget for When Buying a House? | Refresh Financial

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Did You Know About These Fees to Budget for When Buying a House?

Buying a home is complicated. When you first venture into homeownership, it honestly feels like you’re bombarded with rules and advice, tips and fine print, paperwork, and forms… it’s such a massive learning curve, you almost feel like you have to study up.

The sheer amount of information you’re forced to absorb when buying a home is more than some college courses, so it’s no wonder that some things slip past our scouring eyes. What many new homeowners often overlook are hidden fees, tucked away all quiet in the fine print.

Although stressful, becoming a homebuyer for the first time is an incredibly exciting experience. Offers can go back and forth, financing can take forever, and everything has to be done and signed by the closing date. As the closing date approaches, things seem to get more and more hectic. The stress of buying a new home is very real, so you should do everything you can to avoid any last-minute surprises.

Here are some common mortgage fees that are often overlooked:

1. Ending your mortgage early

Either by selling your home or coming into a large chunk of cash, you want to pay off your entire mortgage early. The problem is, this is going to cost you a fee and that fee can vary drastically depending on how old your mortgage is. Typically, paying off your debts as quickly as possible is a great habit to get into.  But when it comes to your mortgage, it's not as cut and dry. In fact, in some cases, paying off your mortgage early could hurt you. Here are two examples!

  • Penalties

Depending on the type of mortgage you have and how much you've already paid off, paying off the remainder could have significant penalties. Sometimes, these penalties can be as much as 20% of your mortgage. Before you go ahead and decide to pay off your mortgage, check in with your financial institution to make sure you're not going to incur a crippling penalty by doing so.

  • Tying up your money

When you pay off your mortgage, your money is now tied up with your home. You can't use that money to make other, quicker returning investments, and you can't free it up to do things like pay for renovations, a vacation or buy a car. Don't use money that you're saving up for retirement either, because when it comes time to retire, you may be forced to sell your home to free up that cash to get by.

Of course, paying off your mortgage early has its upsides, too. You'll save a great deal of interest, you'll free up more spending cash when there are no more monthly mortgage payments. You will also have a ton more equity in your home. The pros are many.

Ultimately, whether or not you should pay off your mortgage early is up to you. It depends on your situation and whether or not you will incur hefty penalties. The best advice is to do your research. Talk with your financial institution and any advisors you may know and find out what paying your mortgage off early means for you. Then, make an educated decision that you can live with.

2. Switching lenders

If you’re in a collateral mortgage, you could be facing fees to transfer it to another lender when your mortgage comes up for renewal. Be sure to ask and clarify if you are getting a conventional or a collateral mortgage.

3. Renewing or refinancing your mortgage

Breaking your mortgage term early can draw hefty fees. You must be sure to ask your lender what their specific rule surrounding early renewal or refinancing are and calculate how much that might cost you.

4. Appraisal costs

Your lender may require you to get an appraisal of the property you're about to purchase. An appraisal is an assessment of the home and an estimate of its value. Most mortgage lenders are going to require an appraisal of the property before you buy it, as the property is what is backing the mortgage. The cost of the appraisal is the responsibility of the homebuyer, and it could be as high as $500. It'll be another $500 approximately if your lender requires a land survey of your new property.

5. Purchase tax

If you’re purchasing a new home or condo, you’re likely going to have to pay tax on it. Some purchases can qualify for tax rebates depending on which province you are in, so it’s best to check if you will owe tax on your home purchase.

6. CMHC premiums

If your down payment is less than 20% of the asking price, you will need to pay for mortgage insurance from the CMHC (Canada Mortgage and Housing Corporation). You won't have to pay this in one lump sum, but it will factor into your mortgage payments. Be sure to calculate these fees, as it can alter what you thought your monthly expenses will be. You can check out the CMHC premium calculators to find out how much you will pay.

7. Land transfer tax

Your home purchase may qualify for the land transfer tax exemption, but if it doesn't, you're looking at a few thousand dollars here. This can cost upwards of $10,000 depending on the asking price for your new home. However, in some provinces you can have this fee paid for by a grant if you are a qualifying new homeowner. Make sure you check if you’re eligible for a land transfer tax grant.

8. Insurance

What kind of insurance, you ask? Every kind. You're going to need a varied mix of property insurance, home insurance, content insurance, life insurance, fire insurance, earthquake insurance, and any other insurance your financial institution may dream up in the time it takes to get your mortgage finalized. Basically, you could file a claim if you sneeze. This can cost a few hundred dollars per year, per policy.

9.  Overlooked fees

  • For instance, have you considered the fees you will have to pay your lawyer or notary for dispersing the funds involved in the sale (aka Closing Costs)? Your legal representative will prepare all your documents and perform a title search to ensure your purchase is legal and complete. This step is unavoidable and can cost you well over a thousand dollars.
  • You will also need a home inspection so that you know what you're getting yourself into. There's nothing worse than going through all the excitement and stress of buying your first home, only to find out you have a leaky roof and need to drop a ton of money on a new one. Home inspections can be upwards of a thousand dollars here in Canada.
  • On top of all this, there are also the costs that accumulate throughout the process. Bank fees, realtor fees, moving your utilities, fuel fees driving back and forth from your bank to your home; the lawyer's office back to work; from your old place to the new place to meet the inspector (and on and on).
  • If you’ve bought a condo or a townhome, you might be required to pay strata fees. This goes to the strata council who take care of complex-wide issues and concerns.
  • Your home inspection may reveal things that need repairing right away.
  • Registering your deed and mortgage is required in some places, and doing so will cost a fee.
  • Every year, you will be required to pay taxes to your municipality, on your property. Some areas are more expensive than others, but your realtor should be able to tell you what the taxes are on the home you’re considering purchasing.

10. The cost of a bottle of wine

Lastly, you're definitely going to want to budget in a bottle of wine for the moment it's all over. Keys in hand, you're officially a first-time homebuyer. It's the moment that makes it all worth it.

 

Sometimes these fees are not disclosed, so it is up to you to ask the right questions and seek the right advice. Go over your mortgage contract with a fine-toothed comb and ask your lender any questions that arise from it. Confront your mortgage provider with specific questions about these exact fees and get their answers in writing, if you can. In this day and age, it is truly buyer beware - you just cannot count on transparency from financial institutions or your memory of conversations from a number of years ago. Do your homework, find out your fees, and make sure you have all the right information when it comes to making any big decisions around a mortgage.

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Have you been turned down for a mortgage due to a low credit score? Check out Refresh Financial's Credit Building Program and see how you can start building your credit and reaching your dream of becoming a home owner.

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