What closing costs are — and why they catch first-time buyers off guard
Closing costs are the fees, taxes, and adjustments you pay on or before your possession date — the day you legally take ownership of the property. They are separate from your down payment and must be paid with verified funds (typically a bank draft or wire transfer) that your lawyer or notary receives before closing.
The most common mistake first-time buyers make is budgeting precisely for the down payment and forgetting that closing costs add another 1.5%–4% of the purchase price. On a $700,000 home with a 10% down payment ($70,000), a buyer who only saved the down payment will be $10,500–$28,000 short at closing. That gap kills deals.
Closing costs fall into three categories: government charges (land transfer tax, GST/HST on new construction), professional services (legal fees, appraisal, home inspection, survey), and lender requirements (title insurance, mortgage default insurance premium if applicable, interest adjustment). Understanding each category helps you build an accurate budget before you write an offer.
Your lawyer or notary will provide a statement of adjustments roughly one week before closing. This document itemizes every credit and debit — the purchase price, your deposit, the down payment, property tax adjustments, strata fee adjustments if applicable, and all closing costs. Review it carefully. Errors in the statement of adjustments are fixable before closing but expensive to unwind afterward.
- Closing costs = fees, taxes, and adjustments paid ON TOP of your down payment.
- Budget 1.5%–4% of purchase price — higher in provinces with land transfer tax, lower in Alberta/Saskatchewan.
- Your lawyer provides a statement of adjustments ~1 week before closing — review every line.
- GST/HST applies to NEW construction purchases, not resale homes (with rare exceptions).
Land transfer tax — the biggest variable, province by province
Land transfer tax (LTT) — called property transfer tax in BC, welcome tax in Quebec, and land transfer fee in some provinces — is typically the largest single closing cost. Each province sets its own rates, brackets, and first-time buyer rebates. Knowing your province's schedule before you house-hunt lets you budget accurately and avoid last-minute panic.
Ontario charges the highest land transfer tax in Canada, plus many municipalities (Toronto being the most notable) levy an additional municipal land transfer tax on top of the provincial one. A Toronto buyer pays roughly double the LTT of an Ottawa buyer for the same purchase price. First-time buyers in Ontario can claim a rebate of up to $4,000, which fully covers the provincial LTT on homes up to $368,000.
British Columbia's property transfer tax uses three brackets: 1% on the first $200,000, 2% on $200,001–$2,000,000, and 3% on the balance above $2,000,000. An additional 2% foreign buyer tax applies in specified regions. First-time buyers may qualify for a full exemption on homes up to $500,000 and a partial exemption up to $525,000 — worth up to $8,000.
Quebec's welcome tax (droits de mutation) is calculated on a tiered basis — 0.5% on the first $55,200, 1% on $55,200–$276,200, and 1.5% on the balance above $276,200. Montreal and other cities do not levy additional municipal transfer taxes. First-time buyers in Quebec do not receive a specific LTT rebate, though some municipalities offer home-buying assistance programs.
Alberta and Saskatchewan charge no provincial land transfer tax — buyers pay only a nominal registration fee (typically $100–$300). This is one reason why cash-to-close requirements in the Prairies are substantially lower than in Ontario or BC for the same purchase price.
Manitoba, New Brunswick, Nova Scotia, PEI, and Newfoundland and Labrador each have their own LTT schedules. PEI charges 1% on the full purchase price with a first-time buyer exemption. Nova Scotia's municipal deed transfer tax varies by municipality (Halifax charges 1.5%). Always check your specific municipality — some cities levy additional taxes beyond the provincial schedule.
| Province | Tax Name | Rate Structure | LTT on $700K | FTHB Rebate Max |
|---|---|---|---|---|
| Ontario (non-Toronto) | Land Transfer Tax | 0.5%–2.5% tiered | $10,475 | $4,000 |
| Toronto, ON | Provincial + Municipal LTT | 0.5%–2.5% + 0.5%–2.5% | $20,950 | $8,475 |
| British Columbia | Property Transfer Tax | 1%–3% tiered | $12,000 | $8,000 |
| Quebec | Welcome Tax | 0.5%–1.5% tiered | $8,678 | N/A |
| Alberta | Registration Fee | Flat fee | $125 | N/A |
| Saskatchewan | Registration Fee | Flat fee | $150 | N/A |
| Manitoba | Land Transfer Tax | 0.5%–2% tiered | $9,950 | N/A |
| Nova Scotia (Halifax) | Deed Transfer Tax | 1.5% municipal | $10,500 | N/A |
| New Brunswick | Real Property Transfer Tax | 1% flat | $7,000 | N/A |
| PEI | Real Property Transfer Tax | 1% flat | $7,000 | Full exemption |
| Newfoundland & Labrador | Registration Fee | 0.4%–0.6% tiered | $1,400 | N/A |
Rates as of May 2026. Municipal taxes (e.g., Toronto, Halifax) are additional to provincial rates. FTHB rebates have purchase price caps and eligibility requirements. Always verify with your lawyer for your specific municipality and transaction.
Legal fees, title insurance, and appraisal — the fixed-cost layer
Beyond land transfer tax, a second layer of closing costs includes professional services that are relatively consistent across Canada. These costs are less variable than LTT but are mandatory for virtually every residential real estate transaction.
Legal fees and disbursements typically run $1,500–$3,000 depending on the complexity of the transaction, the lawyer's rate, and whether you are buying or refinancing. Disbursements include title search fees, courier charges, registration fees, and software transaction levies. A straightforward purchase with a single mortgage and no title complications will be at the lower end; a refinance with a private second mortgage discharge or an estate sale may require more legal work and cost more.
Title insurance is a one-time premium (typically $250–$500) that protects against title defects, survey issues, liens, encroachments, and fraud. Most lenders require it as a condition of funding, and even when it is optional, the cost is small relative to the protection it provides. In Canada, title insurance has largely replaced the traditional survey requirement — most institutional lenders accept title insurance in lieu of an up-to-date survey.
An appraisal is ordered by the lender (not you) but you typically pay for it — usually $350–$600. The appraisal confirms the property's market value and is required for most conventional and insured mortgages. If the appraisal comes in below the purchase price, the lender will only fund based on the appraised value, and you will need to bridge the gap with additional down payment.
A home inspection ($400–$800) is technically optional but strongly recommended. It is not a closing cost in the strict sense (you pay the inspector directly, not through the lawyer), but it is a pre-closing expense that every buyer should budget for. The inspection may reveal defects that allow you to renegotiate the purchase price or walk away with your deposit if the offer was conditional on inspection.
- Legal fees + disbursements: $1,500–$3,000 — higher for complex transactions or private mortgage discharges.
- Title insurance: $250–$500 one-time premium — protects against title defects, liens, and fraud.
- Appraisal: $350–$600 — ordered by the lender, paid by you, required for most mortgages.
- Home inspection: $400–$800 — optional but highly recommended, paid directly to the inspector.
Legal fees and title insurance are non-negotiable for most transactions — budget $2,000–$3,500 for this layer.
Property tax and strata fee adjustments — what gets pro-rated at closing
On closing day, the buyer and seller split certain recurring property expenses based on who owns the property on each day. These are called adjustments, and they can create a credit or a debit on your statement of adjustments — meaning you either receive money back or owe additional funds at closing.
Property tax adjustments are the most common. If the seller has already paid the full year's property taxes and you take possession partway through the year, you will owe the seller a credit for the portion of the year they have already paid for but you will occupy. Conversely, if property taxes are unpaid at closing, the seller will credit you for the portion they owe, and you will pay the full bill when it comes due.
Strata or condo fee adjustments work the same way. If the seller prepaid monthly strata fees, you reimburse them for the days after closing. If strata fees are in arrears, the seller credits you. Additionally, some strata corporations may have a special assessment pending — a one-time levy for major repairs like roof replacement or building envelope work. Your lawyer will check for special assessments during the title search, and they are typically the seller's responsibility unless negotiated otherwise in the purchase contract.
Utility adjustments — hydro, gas, water — are handled separately from the lawyer. You are responsible for setting up accounts in your name and taking meter readings on possession day. The seller closes their accounts, and any outstanding balances remain their responsibility. Your lawyer will not typically manage utility account transfers, so budget time on possession day to contact utility providers.
Rental property adjustments add another layer. If you are buying a tenanted property, the seller must credit you for any prepaid rent and security deposits held. You become the landlord on closing day, and you assume responsibility for returning security deposits to the tenants when they eventually move out — so ensure your lawyer confirms the deposit amounts and transfers them correctly on the statement of adjustments.
- Property tax: pro-rated between buyer and seller based on possession date.
- Strata/condo fees: same pro-ration logic — plus check for pending special assessments.
- Utilities: handled separately — you set up accounts, seller closes theirs.
- Rental properties: prepaid rent and security deposits transfer to buyer at closing.
New construction closing costs — GST/HST and hidden extras
Buying a newly constructed home introduces additional closing costs that do not apply to resale purchases. The most significant is GST/HST, which applies to new construction but not to resale homes (with very limited exceptions). On a $700,000 new-build home in Ontario, 13% HST adds $91,000 to the purchase price — though rebates may recover a portion.
The federal GST new housing rebate can recover 36% of the GST paid on homes up to $350,000, with a partial rebate phasing out up to $450,000. Provincial new housing rebates vary — Ontario offers a rebate of up to $24,000 on the provincial portion of HST, BC offers a rebate on homes up to $525,000. These rebates are typically assigned to the builder at closing, so the purchase price you see in the contract often already reflects the net GST/HST after rebates. Confirm this with your builder and lawyer.
Beyond GST/HST, new construction buyers face additional costs: utility hookup fees (water, sewer, electrical — often $2,000–$5,000 total), landscaping and fencing requirements imposed by the municipality or developer, driveway paving, appliance purchases (not included in most new builds), and window coverings. These are not closing costs in the legal sense but are out-of-pocket expenses due around the same time as closing.
New construction purchase contracts also often include development charges and lot levies that the builder passes through to the buyer. These can run $10,000–$30,000 depending on the municipality and are typically capped in the purchase agreement — but always check the cap amount. Uncapped development charges are a significant financial risk in new construction purchases.
Tarion warranty enrollment in Ontario (and equivalent new home warranty programs in other provinces) is typically included in the purchase price and administered by the builder, but confirm this with your lawyer. The warranty covers deposit protection, construction defects, and major structural defects for varying periods after closing.
- GST/HST applies to new construction — rebates may recover up to 36% of the federal portion.
- Utility hookup fees: $2,000–$5,000 — budget separately from the purchase price.
- Development charges: $10,000–$30,000 — ensure these are capped in your purchase agreement.
- Tarion/new home warranty: typically included but confirm with your lawyer at closing.
How to reduce closing costs without increasing risk
Closing costs are not fully avoidable, but several strategies can reduce the cash you need at closing or offset the total expense. Each strategy carries trade-offs — understand the net cost, not just the upfront savings.
First-time home buyer land transfer tax rebates are the most valuable cost reduction — up to $4,000 in Ontario, $8,000 in BC, and full exemptions in PEI. These rebates are claimed through your lawyer at closing, not as a separate application afterward. Your lawyer will deduct the rebate from the LTT payable, reducing your cash-to-close requirement immediately.
Cashback mortgages offer a lump-sum cash payment at closing (typically 1%–5% of the mortgage amount) that you can use toward closing costs. However, cashback mortgages carry higher interest rates — typically 0.50%–1.00% above standard rates — and the cashback amount is added to your mortgage balance. On a $500,000 mortgage, 3% cashback gives you $15,000 at closing but adds $15,000 to your principal, costing roughly $25,000 in additional interest over a 25-year amortization.
Lender promotions — rate buydowns, appraisal fee rebates, legal fee credits — are negotiable and change seasonally. Some lenders offer a $1,000–$2,000 closing cost credit during slower periods. These promotions do not increase your mortgage balance and do not carry the long-term interest cost of cashback mortgages. Ask your broker to compare current lender promotions before committing.
Negotiating with the seller to cover some closing costs is possible in buyer's markets. A seller may agree to credit $2,000–$5,000 toward closing costs as part of the purchase negotiation, effectively reducing the purchase price for your budget. However, this credit cannot exceed your actual closing costs — the lender will verify — and it must be documented in the purchase agreement.
Using your RRSP Home Buyers' Plan (up to $60,000 per individual, $120,000 per couple) is a source of down payment funds, not technically a closing cost reduction. But it frees up cash that can be allocated to closing costs, indirectly reducing the financial strain at closing. Remember that HBP withdrawals must be repaid to your RRSP over 15 years.
Land transfer tax rebates are the most powerful closing cost reduction for first-time buyers — claim them at closing through your lawyer.
Closing day timeline — what happens and when your money must arrive
Closing day follows a precise legal and financial sequence. Understanding the timeline prevents last-minute scrambling and ensures your funds arrive on time.
Three to five business days before closing: your lawyer receives the mortgage instructions from the lender, prepares the statement of adjustments, and sends it to you for review. This is your last opportunity to catch errors — verify every line, including the purchase price, deposit credit, down payment, property tax adjustments, and all closing costs.
One to two business days before closing: your lawyer provides the final cash-to-close figure — the total amount you must deliver. This must be in the form of a certified cheque, bank draft, or wire transfer. Personal cheques and e-transfers are not accepted for real estate closings. Your lawyer deposits these funds into their trust account and confirms receipt with the lender.
Closing day: the lender advances the mortgage funds to your lawyer's trust account. Your lawyer registers the transfer of title and the mortgage charge with the provincial land registry. Once registration is confirmed, your lawyer releases the purchase funds to the seller's lawyer. You receive the keys — typically through your real estate agent or directly from the seller — once the seller's lawyer confirms receipt of funds.
After closing: your lawyer sends you a final reporting package including the registered transfer of title, the mortgage document, the final statement of adjustments, and the title insurance policy. Keep these documents permanently — they are your legal proof of ownership. Set up your property tax account with your municipality and confirm your first payment date.
Frequently asked questions
How much should I budget for closing costs in Canada?
Budget 1.5%–4% of the purchase price for closing costs, depending on your province. On a $700,000 home, that is $10,500–$28,000. The largest variable is land transfer tax: Ontario and BC buyers pay the most, while Alberta and Saskatchewan residents pay only nominal registration fees. Add $2,000–$3,500 for legal fees, title insurance, and appraisal in every province.
Are closing costs included in the mortgage?
Closing costs are not automatically included in the mortgage — you must pay them with separate funds at closing. However, cashback mortgages can provide a lump sum at closing (typically 1%–5% of the mortgage amount) that you can use toward closing costs. The trade-off is a higher interest rate (0.50%–1.00% above standard) and the cashback amount added to your principal, increasing total interest cost over the amortization.
What is the first-time home buyer land transfer tax rebate?
Ontario offers a rebate of up to $4,000 on provincial LTT for first-time buyers. BC offers a full exemption on homes up to $500,000 and a partial exemption up to $525,000 (worth up to $8,000). PEI offers a full exemption. Toronto first-time buyers can claim both the provincial rebate and the municipal rebate (up to $4,475). Rebates are claimed through your lawyer at closing, not afterward — the credit is applied directly to your cash-to-close.
Do I pay GST/HST on a resale home?
No — GST/HST does not apply to resale residential homes in Canada. It applies only to new construction, substantially renovated homes, and vacant land sales. If you are buying a newly built home, budget for GST/HST (or the net amount after rebates) as part of your closing costs. The builder typically includes the net GST/HST in the purchase price after assigning rebates, but confirm this with your lawyer.
What is title insurance and do I need it?
Title insurance is a one-time premium ($250–$500) that protects against title defects, survey issues, existing liens, encroachments, title fraud, and compliance issues with municipal zoning. Most Canadian mortgage lenders require it as a condition of funding. Even when it is optional, the protection is valuable — a title defect can cost tens of thousands to resolve without insurance. Title insurance has largely replaced the need for an up-to-date property survey in most Canadian real estate transactions.
Can I use my RRSP to cover closing costs?
The RRSP Home Buyers' Plan allows you to withdraw up to $60,000 (per individual, $120,000 per couple) tax-free for a home purchase. While HBP funds are technically for the down payment, using them for the down payment frees up other cash that you can allocate to closing costs. HBP withdrawals must be repaid to your RRSP over 15 years, with minimum annual repayments of 1/15 of the total withdrawn. Missed repayments are added to your taxable income for that year.
When are closing costs due — before or on possession day?
Closing costs are due on or slightly before your possession day. Your lawyer will provide the final cash-to-close figure 1–2 business days before closing, and the funds must be delivered to the lawyer's trust account before the lender advances the mortgage funds. Funds must be in the form of a certified cheque, bank draft, or wire transfer — personal cheques and e-transfers are not accepted. Plan to have your funds ready at least 2 business days before closing to avoid delays.
Budget your closing costs before you write an offer
Use our closing costs calculator to estimate your land transfer tax, legal fees, and total cash-to-close — then book a consult to review your numbers with a licensed Canadian broker.
