Closing costs and the buy vs rent decision

What closing costs usually include

The main items are the government charge on the transfer of title, legal fees, title insurance, a home inspection, an appraisal if the lender requires one, moving costs and prepaid adjustments to the seller for items such as property tax already paid. Amounts vary by province, lawyer and property.

For the worked examples below the engine uses $1,800 to $2,200 for legal fees depending on province, $300 for title insurance, $600 for an inspection and $1,000 for other costs. It also counts $1,500 for the buyer’s move. These are planning inputs. Get real quotes before you rely on them.

The same $600,000 home in four provinces

Suppose a $600,000 purchase with 20% down, a 4.5% rate and the other default inputs of the calculator: rent of $2,300 a month, 3.5% yearly price growth and a ten-year hold. Only the province changes. The governments’ share of closing costs is the part that moves.

Why closing costs push out the break-even

Closing costs are spent once and never come back. A household that pays $13,900 to close in British Columbia starts the comparison $13,900 behind a renter who invests that cash instead. The home must appreciate and the mortgage must be paid down enough to make up the gap, and that takes time.

In the example the break-even moves from about 5.7 years in Alberta to about 7.0 years in Ontario. The effect is visible at short horizons. With a five-year hold, buying finishes about $4 behind renting in Alberta, about $10,061 behind in Ontario and about $11,793 behind in British Columbia. By ten years, buying leads in all four provinces.

First-time buyer rebates

Some provinces reduce transfer tax for first-time buyers. Ontario’s rebate is up to $4,000 (up to $4,475 in Toronto, where a municipal tax also applies). In the engine, the same $600,000 Ontario purchase with the rebate has closing costs of $8,575 instead of $12,575, and the ten-year result improves from $28,541 to $35,374 in the buyer’s favour.

British Columbia’s first-time buyer and new-build exemptions exist but have eligibility tests and change over time, so check the current rule with the province before you rely on one. The federal Home Buyers’ Amount is a credit worth up to $1,500 for eligible first-time buyers, which helps but covers only a small part of closing costs.

Closing costs and the size of your cash cushion

Closing costs also affect liquidity. A household with a 5% down payment and little else in savings can be squeezed once closing costs are added. Insured mortgages, which are required when the down payment is under 20%, add a premium that is usually folded into the loan; see CMHC insurance and buy vs rent.

Keep an emergency fund after closing. A buyer with no cash left may find a first repair or an income gap more stressful than the numbers suggest, and the model has no way to price that.

How to use the numbers

Replace the defaults with quotes from your own lawyer or notary and your own province’s tax. The closing costs tool estimates the transfer-tax line for the provinces covered, and the break-even tool shows how long you need to stay.

Remember that Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador and Saskatchewan use approximate figures on this site. Confirm the exact amounts with a lawyer or notary before you budget.