Thinking of Selling? Costs You Should Know About!

Marci • Jan 12, 2018

Often times it’s the simple math that will betray you when selling a property. In your head you do quick calculations, you take what you think your property will sell for and then subtract what you owe on your mortgage, and the rest is your profit! Well… not so fast, there are several costs that have to be taken into consideration when selling a home. It’s especially important to get these costs right when you are selling one property, and using the proceeds from that sale as a downpayment for another property.

So here is a fairly comprehensive list of costs you may incur when selling your home.

Real Estate Transaction Costs

Although it may seem odd that you have to pay money to sell your home, that’s the reality, and selling a property isn’t cheap. If you use the services of a professional REALTOR®, the total commission cost is going to be anywhere between 4-6% of the purchase price, divided between the listing agent (the REALTOR® who represents you) and the buyer’s agent (the REALTOR® representing the buyer). It’s also good to note that GST is added to real estate commissions.

If you are looking for a way to get around paying real estate commissions, you might consider selling your house privately. To list your property with a FSBO company (for sale by owner), you are going to be anywhere between $400-$1500 just for setup and a bit of marketing. From there, you may still have to negotiate a commission if potential buyers are working with a buyer’s agent.

Mortgage Discharge Fees

If you have a mortgage on your property, there will be a cost to discharge it, the question is how much?

If you are breaking your mortgage in the middle of your term, you will be responsible to pay a penalty. On a closed mortgage, that penalty will be either 3 months interest or an Interest Rate Differential penalty, known as an IRD. Each mortgage contract is written up differently lender by lender, so it’s impossible to simply explain the math here and have you calculate your penalty on your own. In order to figure out your IRD ahead of time, you can either contact your lender directly, or you can contact me and I can help you through the process.

The IRD penalty is the wildcard in the whole process, because depending on how the lender calculates the penalty, penalties can range from $3,000 to $30,000. It is very important to know what you are dealing with here.

If you are currently in a variable rate mortgage, your penalty will be equal to 3 months interest. Even if you are in an open mortgage, or have a home equity line of credit secured to your property, there might not be a penalty to discharge, but there will most certainly be some kind of lender fee, usually between $250-$500.

Lawyer’s Fees

In order to discharge the title of your property, and to verify that the buyer is going to receive a clear title of your property, you are going to incur legal fees to sell your property. In a straightforward discharge, expect to pay between $500-$1000, less than when you purchased the property, but an expense none the less.

Utilities and Property Tax

Although this might not come as a surprise, when you are selling your property, you are responsible for paying all the property taxes and utilities up to the day you no longer have possession. If you close in the middle of the month, you will be responsible for half the months taxes and utilities. If you are on equalized payments, and you have run a deficit with the utility company, expect to bring that bill current before your lawyer can discharge the mortgage!

Capital Gains Tax

If you’re selling your primary residence, you are in the clear. In Canada we don’t pay tax on the appreciation of our primary residences, however, if you are selling an income property, you will be responsible to pay taxes on half the gains at your marginal income tax rate.

Property Repair

If you are looking to sell your house quickly, you will want to make sure that it is in tip top shape, don’t underestimate the growing costs of fixing your property up before trying to sell it. It has been said that sellers should consider spending up to .5%-1% of the asking price on getting the property ready, making sure the small things are looked after will give people the feeling like the property was looked after . Low-cost, minor improvements like

Patch drywall and nail holes, repaint.
Fix or replace damaged flooring.
Repair plumbing leaks.
Replace burnt out light bulbs.
Replace outdated light fixtures.
Clean out and reseal gutters.
Keep up with the yard and garden.

Moving

Don’t forget that once you do sell your house, it’s gonna cost you money (and time) to move. Depending on how much stuff you have, you are looking at some gas money and pizza for friends, or a few hundred to a few thousand for movers.

There you have it, by understanding these costs hopefully you will have a better idea of how much money you will actually have in your jeans after selling your house! And if you need a mortgage to buy a new one, contact me anytime!

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4 Ways to Access Your Home Equity

By Marci Deane • 08 May, 2024

If you've been a homeowner for many years, it is likely your property value has increased significantly. One advantage of homeownership is the opportunity to build equity. Home equity growth, partnered with the security of living in your own home, is why most Canadians believe homeownership is the best choice for them! While home equity is one of your greatest assets, accessing home equity is often overlooked when putting together a comprehensive financial plan. So if you’re looking for a way to access some of your home equity, you’ve come to the right place! Simply put, home equity is the actual market value of your property minus what you owe. For instance, if your home has a market value of $650k and you owe $150k, you have $500k in home equity. If you want to stay in your home but also access the equity you have built up over the years, there are four options to consider. Conventional Mortgage Refinance Assuming you qualify for the mortgage, most lenders will allow you to borrow up to 80% of your property’s value through a conventional refinance. Let’s say your property is worth $500k and you owe $300k on your existing mortgage. If you were to refinance up to 80%, you would qualify to borrow $400k. After paying out your first mortgage of $300k, you’d end up with $100k (minus any fees to break your mortgage) to spend however you like. Even if you paid off your mortgage years ago and own your property with a clear title (no mortgage), you can secure a new mortgage on your property. Reverse Mortgage A reverse mortgage allows Canadian homeowners 55 or older to turn the equity in their home into tax-free cash. There is no income or credit verification; you maintain ownership of your home, and you aren't required to make any mortgage payments. The full amount of the mortgage will become due when you decide to move or sell. Unlike a conventional mortgage refinance, reverse mortgages won’t allow you to borrow up to 80% of your home equity. Rather, you can access a lesser amount of equity depending on your age. The interest rates on a reverse mortgage can be slightly higher than the best rates currently being offered through standard mortgage financing. However, the difference is not outrageous, and this is an option worth considering as the benefits of freeing up cash without mortgage payments provides you with increased flexibility. Home Equity Line of Credit (HELOC) A Home Equity Line of Credit allows you to set up access to the equity you have in your home but only pay interest if you use it. Qualifying for a HELOC may be challenging as lender criteria can be pretty strict. Unlike a conventional mortgage, a HELOC doesn't usually have an amortization, so you're only required to make the interest payments on the amount you've borrowed. Second Position Mortgage If the cost to break your mortgage is really high, but you need access to cash before your existing mortgage renews, consider a second mortgage. A second mortgage typically has a set amount of time in which you have to repay the loan (term) as well as a fixed interest rate. This rate is usually higher than conventional financing. After you have received the loan proceeds, you can spend the money any way you like, but you will need to make regular payments on the second mortgage until it's paid off. If you’re looking for a way to access the equity in your home to free up some cash, please get in touch. You’ve got options, and we can work together to find the best option for you!

Interest Rate Cut Speculation Heats Up!

By Ask Marci • 06 May, 2024

Rate cut speculation is heating up! We wanted to touch on a few things in regard to the big “interest rate conversation”. Yes, the Bank of Canada will very likely start cutting the Bank of Canada rate this summer (perhaps as soon as next month). This will immediately impact Variable Rate mortgage holders. Currently, the prime lending rate is 7.20% meaning a 0.25% rate cut by the BOC should mean that banks will follow suit and cut prime to 6.95%. The US jobs numbers on Friday have improved the odds of a predicted BOC bank cut. This week rate watchers will be focused on the Canadian numbers (due out on Friday May 10th). Economists that we follow speculate that the current fixed rates are already pricing in the BOC’s first two cuts. This means that a cut in June or July may not impact fixed rates at all. The cut will narrow the spread between fixed and variable. If history is a predictor, this chart we created illustrates this where the green line will simply drop, narrowing the gap between prime, fixed and variable.

How to Save Money for a Downpayment

By Marci Deane • 01 May, 2024

Whether you want to set aside money to buy a car or take a vacation, save up for a down payment on a property, or plan for your retirement, the principles are the same. However, as you’re reading this article on a website dedicated to helping you secure mortgage financing, we’ll assume you want tips on how to save for a down payment! The key to saving money is getting clarity - clarity around your income and your expenses, developing and following a clear plan, and seeking help from professionals who can help you see the big picture as well as the details. Although this might seem fundamental, sometimes going back to basics is the best place to start. Assess your income. If your goal is to save money, you’ll need to identify just how much money you’ve got to work with! The best way to do this is to write everything down. This could be with paper and a pen or on a spreadsheet; whichever way works best for you is fine. The goal is to have all your income in front of you! If you’re on a fixed income or receive a salary for work, your calculations might be pretty simple. Use the income you actually take home, not your gross income. Include an average of your variable income sources like tips, overtime, bonuses, or shift differentials. You should also include other income sources like an annual tax return, and child tax or other government benefits. Spend time to make an exhaustive list of all your income sources. Track your expenses. Once you’ve identified what you have to work with on the income side, the next step is to figure out just how much you actually spend to maintain your current lifestyle. Start by identifying regular bills, then look at your discretionary spending. If you have a budget already in place, you should be able to identify these numbers easily. If not, you can expect that getting clarity around your expenses will be very enlightening. It will be helpful to look through a few months’ worth of bank statements to see just how much money you actually spend. Information is the key to finding clarity. The more information you have, the more equipped you will be to save money. Just like your income, write down all your expenses. This will allow you to assess and reprioritize where you spend your money. Develop and follow a plan. Once you have a clear picture of your income and expenses, you need to figure out how to make more money than you spend. Although that sounds so simple, it really isn’t. The majority of Canadians incur debt because they spend more money than they make. This is why saving money can be so hard. But if we’re going back to basics, remember this: if you’re spending more money than you're making, you need to either increase your income or decrease your expenses to start saving money. There are countless money-saving strategies on the internet; consider following a few financial bloggers, and have fun learning about what works best for you! Seek help from professionals. You’re probably here to learn about how to save money for a down payment because you want to buy a home soon. If that's the case, be assured you're in the right place. Putting together a plan to secure mortgage financing is one plan you don't have to make on your own. As independent mortgage professionals, it’s our job to help you navigate all aspects of mortgage financing. Just like saving for a down payment is about managing income and expenses, so is getting a mortgage. Income and expenses, along with credit and property, are what a lender looks at when assessing your suitability for a mortgage. So while you might assume that putting together a plan to save for a down payment is where you should start, it might not actually be the best place to start. Saving money takes time, and while you're doing that, there are many other things you could be doing at the same time, like building credit to increase your chances of qualifying for a mortgage sooner. When you’re ready to assess your financial situation and put together a plan to save for a down payment and get into a mortgage sooner, please get in touch. It would be a pleasure to work with you.