What is the true cost of owning a home?
All across the country, home prices have risen quickly over the course of the last few years, turning some real estate markets into nightmares for hopeful buyers and dream paydays for sellers.
For those trying to get into the market, it’s not just enough to save up a sizeable down payment, qualify for a great mortgage, and outbid the competition to get the home you want. You also have to be able to afford to keep the house. That means you need to know how much your home will really cost.
Here’s a quick breakdown of the many, many costs you need to prepare for when owning a home:
Mortgage
This is the big one. Everyone puts most of their effort into finding the right mortgage because it’s the thing that actually lets them buy their home. To get a mortgage you need to have good credit, as well as be able to put up a down payment to pay for at least a part of the home yourself.
Property tax
Property tax is a major source of income for municipal governments across Canada. As such, the tax varies from municipality to municipality, but generally follow criteria set out by province.
These taxes are billed to property owners each year and are based not only on your municipality, but your property’s value, the education tax rate, and your municipality’s own tax rate if it has one. With the high values of some properties in Ontario and British Columbia property tax can amount to $10,000/year or more. You pay less in other areas, but it’s still important to be prepared for this cost of owning a home.
Land transfer tax
As if property tax wasn’t enough, there’s another tax that will put a hurt on your budget if you aren’t ready for it. Land Transfer tax only needs to be paid when purchasing property and the amount you pay is based on the price of the home. The tax is calculated differently in every province except Alberta and Saskatchewan, where there are small transfer fees instead of taxes. In the other provinces be prepared to pay. If you live in Toronto, be prepared to pay both a provincial and municipal land transfer tax.
One bit of good news is that in Ontario, Toronto, BC, and PEI first time homebuyers can get tax rebates on their land transfer taxes, saving a few thousand dollars.
Home insurance
You’re spending all this dough on the home, you need to be prepared if anything happens to it. Home insurance typically costs less than $1,000 per year. While it isn’t required by law, you probably need to get it in order to get your mortgage. Considering all the ways it can benefit you as a homeowner, it’s well worth its price. Compare home insurance rates to make sure you’re getting the best policy for your situation.
CMHC mortgage insurance
Rising housing costs have made it harder to afford a sizeable down payment on a home. While high value homes require 20% down, you can pay a minimum of 5% on homes under $500,000. The catch: you need to pay an insurance premium on your mortgage. CMHC insurance tops out at 3.60% of your loan, which means that it can easily add tens of thousands of dollars to your mortgage. This cost is usually be rolled into your monthly mortgage payments and adds to the overall cost of owning a home.
Other costs
So by now we’ve covered the big costs but the thing about owning a home seems to be that there’s always something else to pay. Here are some other costs to keep in mind when purchasing a home:
- Sales tax
- Legal fees
- Renovations
- Décor
- Utilities
Buying the home is just the beginning. You need to estimate the other costs of owning a home as well.
Bottom line
The cost of owning a home in Canada is probably higher than you expected. However, if you make smart financial moves, like shopping for a mortgage and buying within your means, you can cover all of these costs and more. Good luck out there, house hunters!