Can I use money from my Registered Retirement Savings Plan (R.R.S.P.) to purchase a home?
It is my understanding that:
- if you are a first time home buyer or if you have not owned a home in the last five (5) years; and
- if the home will be your principal place of residence in Canada; and
- if the funds have been on deposit in your R.R.S.P. for at least 90 days,
then a purchaser can borrow up to a maximum of $20,000.00 from his or her R.R.S.P (i.e. a husband and wife could borrow a total of $40,000.00) and that these funds may be applied towards the purchase of a home. After an initial grace period of two full calendar years (plus the balance of the year in which the withdrawal occurred) you are required to pay back the funds borrowed over a period of 15 years by depositing, on a yearly basis, a minimum of 1/15th of the amount withdrawn back into your R.R.S.P. If you do not make a payment of a minimum of 1/15th of the amount withdrawn in any given year then the amount will be included in your taxable income for that year and will be subject to payment of applicable income tax.
Please note that government policies are subject to change. Accordingly, the above is a guideline only. You must speak with your branch of the bank or with Revenue Canada in order to obtain the most accurate and up-to-date information.
Homeowners Insurance – do I need insurance?
In short, the answer is yes. Even if you are purchasing a condominium apartment or townhouse you should have insurance. Please see Guideline of Insurance for Condominium Units.
Utilities – Who is responsible for calling the utility companies (hydro, water, gas) to notify them of a change of ownership?
On all real estate transactions I write to the utility companies to advise of the change of ownership. It is important that my clients when selling call the utility companies to confirm that they are, in fact, moving, to arrange for the final meter readings to be taken and to provide the utility companies with a forwarding address so that the final bill can be sent to the seller at the seller’s new address. Purchasers must also call the utility companies. In order for utility accounts to be set us some utility companies require a deposit from new customers. The utility companies will also ask:
- for personal information in order to set up the utility accounts;
- if the purchaser wishes to go on an equal monthly payment plan or if the purchaser will pay the accounts in accordance with bills produced from meter readings;
- if the purchasers want to pay by preauthorized debit, or if they will send cheques?
These are decisions that I cannot make for my clients.
Title Insurance – What is Title Insurance and how much does it cost?
In Ontario, your lender will require that you take out a title insurance policy. You will pay for the policy once, and it will be good for as long as you own your home. It would also protect you from mortgage fraud.
House under $400,000 = $251.00
Condo under $400,000 = $189.00
More information is available from Stewart Title Guaranty Company at www.stewart.ca
Adjustments – What are the usual adjustments?
In most house resale transactions the only adjustment will be for property taxes and, in the case of a condominium apartment or townhouse, the monthly maintenance fees (also known as common expenses). Essentially, an adjustment is repayment to the seller for any amounts that the seller has paid relating to the period after closing. For instance if the closing takes place on April 15th and property taxes have been paid in advance by the seller to June 30th then the seller would be entitled to an adjustment in the seller’s favour of approximately 2.5 months taxes. Similarly, if the home being sold is a condominium apartment or townhouse, the maintenance fees are always payable on the 1st of the month. Accordingly, the seller would be entitled to reimbursement of approximately one-half a month’s maintenance fee. As a matter of law, the day of closing is the responsibility of the purchaser and not the vendor. Accordingly, in the example above the vendor would be responsible for payment of expenses for 14 days in April (from April 1st, to April 14th), and the purchaser would be responsible for 16 days (from and including April 15th to April 30th).
Other adjustable items include:
- fuel oil
- flat rate water bills
- tenant’s current month rent
- tenant’s last month rent
What is the difference between a Power of Attorney and a Will?
Wills and Powers of Attorney are important documents that are complimentary to each other. It is appropriate for most adults to have both a Will and a Power of Attorney. A Power of Attorney is a document whereby an adult person names another person as his or her representative for specific legal purposes. In most cases, the Power of Attorney is restricted to being exercisable only in the event of incapacity of the person giving the Power of Attorney (the Donor). Accordingly if the Donor is incapacitated by illness or accident then the Attorney can step into the Donor shoes and make decisions that the Donor is unable to make. These decisions can relate to matters such as the ownership and management of real estate, the arranging of mortgages, the management of bank accounts and the handling of investments. On the other hand if a person is incapacitated and does not have a Power of Attorney then things become complicated. The person who believes that he or she is the rightful person to make decisions can apply through a complicated and expensive process to be appointed as a representative of the incapacitated individual. Even worse, the decisions can be made by the Public Trustee’s Office, a branch of the Ontario Civil Service. All-in-all arranging for the making of a Power of Attorney is a prudent course for any adult in Ontario owing assets. A Power of Attorney is valid only while the Donor is alive. Once a person has passed away then the document that deals with the deceased person’s estate is the Will.
Will I be charged a Mortgage Penalties?
A mortgage is either “open” or “closed” An “open” mortgage is one that allows the property owner to sell or refinance and pay off the mortgage without paying a penalty to the financial institution. If your mortgage is maturing, you may, on the maturity date, payoff the mortgage without payment of a penalty. Most mortgages are “closed” mortgages. If your mortgage is a “closed” mortgage then it is very important for you or your agent to obtain mortgage verification from your mortgage company. This mortgage verification will set out the amount of the anticipated penalty or, at the very least; the method of calculation the mortgage company will use to determine the penalty. As a rule of thumb, when paying off a “closed” mortgage the property owner must pay a penalty equal to no less than three (3) months interest on the principal balance owing at closing at the interest rate provided for in the mortgage. Be careful, in some cases the penalty can greatly exceed 3 months interest! Remember, there are no hard and fast rules setting out the way in which penalties are calculated. The penalty on any particular mortgage is determined by the language of that mortgage. Sometimes the language can be very technical. It is ALWAYS a good idea to communicate with your lender.
Your lender will automatically apply an administration fee or processing fee for the preparation of the discharge and for a government registration fee when the mortgage is discharged.
Appliances – Is there an obligation on a seller to ensure that all appliances and fixtures (air-conditioning unit, heating system, etc.) are in good working order for closing?
Unless your Agreement of Purchase and Sale contains a specific clause that states that appliances and fixtures will be in good working order on closing then the obligation of the vendor is to ensure only that these items are in the same condition on closing as they were when your first viewed the home. In other words, if there is a washer and dryer on the premises that do not work at the time you first inspected the house then, in the absence of the good working order clause in your offer, there is no obligation on the vendor to repair these appliances before closing. Needless to say, you should make sure that your Real Estate Agent includes such a clause, for your protection, in your Agreement of Purchase and Sale. Make a note of the colour, make and model of the appliances at the time that you negotiate the Agreement of Purchase and Sale. While it does not happen on a regular basis, it is not unheard of for the seller to replace a new appliance with an old one in the time between the making of the contract and the completion of the sale. The best protection is for the Agreement of Purchase and Sale to actually contain the colour and make of each of the appliances that are to be left behind by the seller.
Inspections – As a purchaser of a home do I have the right to do an inspection before closing?
If you are purchasing a new home then an inspection under the Ontario New Home Warranty Plan is mandatory. If you are purchasing a re-sale home then any right to a final inspection should be contained in your Agreement of Purchase and Sale. In other words, when negotiating for the purchase of the house or condominium you should insert a clause into the Agreement of Purchase and Sale whereby you are entitled to an inspection 24 hours or 48 hours before the closing date. If you do not so provide then getting into your purchased premises before closing for an inspection can be problematic.
As a purchaser, when am I allowed to move into the home I have just purchased?
Paragraph 7 of the form of Agreement of Purchase and Sale commonly used in Ontario provides for a closing to take place before 6:00 p.m. on the date of closing. It is a commonly held misconception that this paragraph means that sellers have until 6:00 p.m. to vacate homes that they have sold. This is NOT the case! Technically, the ownership of the home changes at the time that the Deed to the property is registered by the purchaser’s lawyer into the names of the new owners. This can occur at any time during the course of the business day. Usually, most registrations occur between 2:00 and 5:00 p.m. Accordingly, I recommend to my sellers that they attempt to be finished their move from their existing residence by mid to late afternoon on the day of closing (i.e. by 4:00 p.m.). I inform my purchasing clients that, although they may be the legal owners of the home at 1:20 or 2:00 p.m. it is not a good idea to arrange to be moving into the residence until perhaps 4:00 p.m. Naturally, on many occasions purchasers arrive with the intention of taking possession of their new home at a time when the sellers have not yet fully vacated. My advice to both purchasers and sellers is that they cooperate with each other in allowing their movers to simultaneously move furniture and belongings into and out of the house. Surprisingly, I receive very few frantic calls during the course of a year from clients who are experiencing difficulty as a result of their purchasers attempting to move too early or the vendors attempting to stay on the premises into the evening!
What is the best Closing Date?
For people buying their first home the choice of a closing date is very important. It is not a good idea to automatically select the last Friday of the month or the last day of the month as your closing date. If you are renting your existing residence and buying your first home then it is usually a good idea to close your purchase a week or so before the end of your last rental month. This will give you the opportunity of having a few days to clean, paint, do minor renovations and then move in a relaxed fashion.
On the other hand, if you arrange to vacate your apartment and purchase your home on the last day of the month you will find this day very hectic and stressful. Of course, closing a purchase on the 24th of the month and moving on the 30th ofthe month would result in your having to maintain both your rental property and the home you have purchased for those few additional days. However, this additional cost can be off set, to a certain extent, by the savings in the cost of the movers. Movers, in my experience, do charge less on an hourly basis for moves on slow days than they do on the busier days in the middle of the month and at the end of the month.
If you are selling a home and you have a mortgage to pay off then you are better to close on a Monday, Tuesday, Wednesday or Thursday, rather than a Friday. This is because the funds to pay off your mortgage will come from the purchaser of your property. These funds arrive during the afternoon on the day of closing. If this is a Friday, then your mortgage will be officially paid out until the next business day – usually Monday. However, if Monday is a statutory holiday the funds cannot be paid out until Tuesday. You are paying interest over the weekend rather than just to the next day.
What time should I hire my movers to arrive at my existing residence?
If you are paying the movers by the hour then you should work your timing backwards. In other words, you should estimate that you will have the keys to your new home around 5: 00 p.m. If you estimate for 4 hours loading time, 1 hour travel time and a break for the movers then it would be appropriate for your movers to arrive at your existing residence at approximately 11 :00 or 12:00 a.m. If on the other hand the mover estimates that the loading time three hours then you should not arrange for the movers to arrive until 12: 00 or 1: 00 in the afternoon. It has been my experience that unless you arrange otherwise most movers like to arrive at your existence residence relatively early in the day to start loading the moving van. Unfortunately, this will result in the movers being ready to off-load your furniture and belongings at noon – a time at which it is unlikely that you will have your keys. If you are paying by the hour then you will be paying for the” down time” from, in this example, noon until 3:00, 4:00 or perhaps even 5:00 o’clock. On the other hand, if the mover is charging you a “flat rate fee” for the entire move regardless of the number of hours it takes, then the time at which the move begins becomes irrelevant. Remember, many movers charge more for moving you at the end of the month then they do at “off-times” during the month. A move on the 6th, 7th, 8th, 9th, or 19th, 20th, through the 23rd of the month may be less costly than a move on the 15th, the middle Friday of the month, the last Friday of the month, the last day of the month, or the first day of a month. These latter dates are the most popular days for people to move in Ontario. Accordingly, the movers are likely to be more busy and can, therefore, charge a higher hourly rate. The careful choice of an appropriate closing date can save purchasers and sellers money.
Please remember that, if you are purchasing a condominium apartment, the use of elevators for moving may be restricted to certain hours of the day and that you may be required to make a reservation to use the elevators and/or you may be required to pay a security deposit. I therefore, recommend that you contact the Management Office as early as possible to make appropriate arrangements for the use of elevators for your move.
What is Bridge Financing?
Bridge Financing is appropriate when you have sold your home with a closing date that is after the closing date of your purchase. In these circumstances your financial institution may make available to you the “equity” in your existing home so that you can use this equity to purchase your new home. You will repay the bank of trust company from the proceeds of the sale of your existing home. Banks will usually charge a “processing” or “set up” fee for the bridge financing. Of course, you will also have to pay interest on the amount borrowed for the few days between the closing of your purchase and the closing of your sale.
When do I get the keys?
If you are buying a new home from a Builder you can usually obtain the keys at the site office immediately after closing. Generally speaking, you should not plan on obtaining the keys until mid-afternoon on the day of closing.
If you are purchasing a resale property, the keys will be delivered to my office by the Vendor’s Solicitor at some point during the day of closing. Again, generally speaking, the keys will be available to be picked-up from my office at some point during the afternoon of closing. Naturally, the keys can not be released by my office to you until the closing has been completed. The closing is completed when the balance of the purchase price has been delivered to the seller’s lawyer, the vendor’s closing documentation has been delivered to my office and the Deed and Mortgage have been registered. This process is usually completed electronically by 3:30 p.m. on the day of closing. However, if you look at the form of Agreement of Purchase and Sale that is commonly used in Ontario you will find that paragraph 7 of the Agreement provides for the closing to be no later that 6:00 p. m. on the day of closing. Accordingly, there are occasions when keys will not be available until quite late in the afternoon. When arranging your movers you should keep in mind that you may not have the keys until later in the afternoon.
Although we endeavour to have the key available to my purchasing clients by 3:30 p.m. on the day of closing there are circumstances that can delay the release of keys. For instance, if you are selling as well as buying on the same date (see bridge financing) then naturally we cannot complete your purchase until we have the funds from your sale. If there is a delay by the person or lawyer for the person, purchasing your home then this will result in a delay in the closing of your purchase. Similarly, if you have arranged a mortgage with respect to your purchase the closing funds cannot be delivered to the seller’s lawyer until I have received from your mortgage company or bank the proceeds of your new mortgage.
Who is entitled to a Land Transfer Tax Refund?
First time purchasers of residential properties (houses or condominiums) will receive an instant Land Transfer Tax credit up to a maximum of $2,000.00 for the Ontario Land Transfer Tax, and a maximum of $3,725.00 for the Toronto Land Transfer Tax.
Please note that anyone who has ever owned a home anywhere in the world is not eligible for this refund.
In the situation where a husband and wife are purchasing a new home and one of them has not owned a home before then, provided the other spouse did not own a home during the course of their marriage, then the spouse who has never owned is entitled to a proportionate (or half) refund.
What is Land Transfer Tax and how is it calculated?
Land Transfer Tax or “sales tax” levied by th Province of Ontario. The amount of the tax increases as the purchase price increases. Tax is payable in connection with the purchase of any real estate (including condominiums, cooperative apartments and vacant land) in Ontario Land Transfer Tax (L.T.) is calculated as follows:
- if the purchase price of the property is less than $55,000.00, the tax is 1/2% of the purchase price (this is $5.00 per thousand);
example: if purchase price is $55,000.00, L.T.T. would be $275.00
- if the purchase price is between $56,000 and $250,000.00, the tax is 1% of the purchase price (this is $1.00 per thousand) less $275.00;
example: if purchase price is $250,000.00 L.T.T. would be $2,500.00 less $275.00-$2,225.00
- if the purchase price is more than $250,000.00, the tax is $2,225.00 plus 15% of purchase price in excess of $20,000.00 (this is $15.00 per thousand for each thousand over $250,000.00);
example: if purchase price is $400,000 L.T.T. would be $2,225.00 plus $2,250.00 = $4,475.00
- if the purchase price is more than $400,000 for residential properties having one or two units, there is a surcharge of $5.00 per thousand over $400,000.00 which, essentially, results in tax being 2% of the purchase price in excess of $400,000.00;
example: if purchase price is $500,000.00 L.T.T. would be $2,225.00 plus $2,250.00 plus $2,000.00 = $6,475.00
Land Transfer is paid at the time of closing. When you go for your appointment to sign the closing document, the bank draft or certified cheque that you will be asked to bring with you will include the balance of your down payment, your Ie I fees and out-of-pocket expenses, any money deducted by the mortgagee from the advance f mortgage proceeds and the Land Transfer Tax.