What are all these fees?
The cost of getting a mortgage.
So you sit down with your mortgage agent to discuss a mortgage, and she begins to talk about fees—the elephant in the room.
There are number of fees that need to be paid when you close a mortgage including but not limited to the appraisal fee, lawyer’s fee, land transfer fee, lending fee, broker fees, administrative fee, commitment fees, and GST/HST (if a new build).
Mortgage agents are required to outline every fee that customers will encounter when they complete a mortgage. A mortgage agent also is required to provide customers with a “disclosure document” that not only outlines fees but the various conditions associated with the mortgage.
Let’s take a closer look at the typical fees associated with a mortgage:
- Appraisal: Most institutions require the borrower to provide an appraisal of the property. The appraisal is conducted by a professional appraiser at the request of the lender. The appraiser tells the lender the value of the property and how the property compares to similar properties in the area.
- Legal: You cannot transfer a property from one owner to another without a lawyer conducting a title search to ensure there are no liens, judgments, encroachments, conditions, or other encumbrances against the property and confirming the identity of the borrower(s). Further, the lawyer will go over the legalese of the mortgage document to ensure you understand it.
- Lending Fee: Not everyone will see this fee that is often associated with mortgages that are provided by private lenders or that are commercial. You will not see this with a traditional schedule “A” loan. This fee often covers the costs associated with the lender taking money out of an investment. The private lender charges a premium to the borrower based on the risk associated with the loan; the lender needs to pay advisors, and this fee covers those costs, or it is applied so you do not “shop” the deal, which happens often with commercial loans.
- Broker Fees: This is how I get paid in a “B” deal. I will not charge a fee (most agents won’t) if you fall into traditional financing norms, that is, you have great credit and a cash down payment. In a traditional deal—or what the industry calls an A deal—the lender (not you) pays me a small percentage to bring the deal to their institution. Thus, I will not charge any additional fees because I’m being paid. However, for mortgages that require me to use the sub-prime (B market) or the private market, I will more than likely charge a fee because I’m not being paid to place the mortgage. The fee will be between 1 percent and 2 percent, depending on the complexity of the deal. In commercial deals, a broker fee is automatic; I have yet to find a lender that gives me an incentive to give them a deal.
- Administrative Fees: There is always someone responsible for putting all the paperwork together for either the broker or the private lender. This is usually only a nominal fee to cover costs.
- Mortgage Insurance: Sometimes known as Canada Housing and Mortgage Corporation (CMHC) insurance, mortgage insurance in Canada is required if you make a down payment that is less than 20 percent of the value of the home. CHMC is one of Canada’s insurers, along with Genworth and Canada Guaranty Mortgage. Mortgage insurance protects the lender against the risk of a default by the borrower, and as a result, lenders are willing to provide mortgages to buyers who might not qualify otherwise. This fee is usually added to the loan amount. This fee is often charged to borrowers who are self-employed or who have had credit issues.
- Land Transfer Tax: It’s a tax, not a fee. Tax? Fee? It doesn’t matter; you more than likely are going to pay it. When you acquire land or a beneficial interest in land, you pay a land transfer tax to the province where the transaction closes. The tax is based on a formula that your lawyer will figure out. If you are a first-time homebuyer, you may be eligible for a refund of all or part of the land transfer tax. Your mortgage agent and lawyer will advise accordingly.
So those are the main fees associated with any mortgage, but as noted, that doesn’t mean there won’t be any other fees associated with your specific mortgage. And if yours is a commercial mortgage, it will likely entail additional fees including the following:
- Environmental assessment
- Engineering report
- Survey certificate
- Title insurance
However, a good mortgage agent, whether for a residential or a commercial mortgage, will sit down with you to explain all the costs associated with the mortgage. After all, a mortgage is one of most expensive purchases most people make, so you should know the costs associated with yours.