RICHMOND AND GREATER VANCOUVER REAL ESTATE NEWS

Are you listing your home for sale? Then you’re likely wondering about fees associated with selling a house in Canada, and maybe even real estate lawyer fees in particular, along with who pays lawyer fees when selling a house.

Listing your home in this real estate market involves much more than the transaction itself. Many fees, rules and participants are involved, some of which you may not be aware of. Here’s a rundown of what you need to know when selling a house.

Fees Associated with Selling a House

First, it is crucial to know that when fees are involved in selling a home, the seller’s attorney distributes the funds for them on the closing date. They typically consist of real estate lawyer fees and other costs associated with the transaction’s closing, such as land transfer taxes.

But what are the other fees associated with selling a house?

Mortgage Pre-Payment Penalties

Do you still have a mortgage on your property? If you plan to sell your home before the maturity date of the mortgage term, you will likely face pre-payment penalties.

There are a variety of reasons that you might consider selling a house with a mortgage. The most common scenarios are when you need to move to a new location for a new job opportunity, you’ve added to your family or your children head off to college or university or move out altogether.

The cost of breaking the mortgage contract will depend on your mortgage type.

Open Mortgages

If you have an open mortgage, you can sell your home without paying penalties for breaking the mortgage contract. That’s because an open mortgage is designed to provide greater flexibility without incurring financial penalties. While open mortgages still have a term, borrowers don’t have to wait until the mortgage matures to make changes.

Closed Mortgages

A closed mortgage has set conditions for the duration of the mortgage term. Once the mortgage contract is signed, the terms and conditions can’t be altered without incurring pre-payment penalties. If you chose a closed mortgage for the lower interest rate without understanding all the possible repercussions, you may be facing substantial penalty fees associated with wanting to break the mortgage now.

If you have a closed mortgage with a variable rate, you will usually be forced to pay three months of interest.

If you have a closed mortgage with a fixed rate, you will either pay three months’ worth of interest or the Interest Rate Differential (IRD) amount, whichever is GREATER.

Here’s how the math would work:

Suppose you bought your property when interest rates were high, using a fixed-rate/closed mortgage option with a 5-year term at 6.59%. Let’s also suppose that you still have 24 months left in the term, and you still owe $300,000 but want to break the mortgage and sell now.

Three Months’ Interest Calculation:

Outstanding balance of your mortgage:

$300,000

Multiply the outstanding balance of your mortgage by the annual interest rate on your mortgage:

$300,000 x 6.59% = $19,770

Divide the answer by 12 months to get the monthly interest payable per year:

$19,770/12 = $1,647.50

Multiply the answer by 3 (months)

$1,647.50 x 3 = $4,942.50

Total Three Months’ Interest is $4,942.50

Interest Rate Differential Calculation (IRD):

Current mortgage interest rate:

6.59%

Current Interest Rate on a 3-Year Term:

4.74%

Rate difference between your mortgage rate and current interest rate:

1.85%

Multiply your mortgage balance by the rate differential to get the interest differential for 1 year:

$300,000 x 1.85% = $5,550

Divide this amount by 12 to get the amount for 1 month:

$5,550.00/12 = $462.50

Multiply this amount by the number of months left in your term:

$462.50 x 24 = $11,100

Total Interest Rate Differential (IRD) Penalty is $11,100

In the case of a closed/fixed rate contract, the estimated penalty for selling a house with a mortgage, is $11,100 – since it is the GREATER of the results for the Three Months Interest versus IRD calculations.

Home Inspection Fees

In a buyer’s market, homebuyers will generally request a home inspection before purchasing your home. In certain circumstances, you might be responsible for covering the costs of a home inspection, which can be as high as $500 to $1,000. For example, to make potential buyers feel more confident about making an offer, as a seller, you might choose to do a home inspection before listing the house for sale and make the report available to potential buyers.

Typically, however, this is the buyer’s responsibility.

Rental Costs

It might not be that common, but if you rent a water heater or HVAC system, a buyer may NOT want to assume these rental contracts when purchasing your home. For example, most buyers are loathe to take on the monthly payment of an HVAC system and will usually insist they be paid out in full as a condition of purchase. This is because the rental fee could be more than the new buyer could negotiate on their own and because renting an HVAC system can make it harder for a buyer to get approved for a mortgage and can decrease the resale value of a home. Also, because HVAC rental companies may have registered a lien against the homeowner’s property to ensure they get paid, satisfying the lien can add extra legal fees for buyers and slow down a sale.

Staging Your Home

Years ago, it might have been enough to paint your walls and tidy up your home in order to sell it. Today, however, you’ll likely need to do more, including decluttering, switching out various pieces of your furniture, hanging art on the wall, etc. This is known as home staging.

Is home staging necessary? No. However, industry experts say that home staging can make your home sell faster and add thousands of dollars to your ROI.

According to a recent survey by the International Association of Home Staging Professionals, staged homes (with an investment of one per cent of the listed price) sold up to 30 per cent faster on average and for 20% more than their un-staged counterparts. A survey by the North American Real Estate Staging Association showed even better results, with staged homes spending 73 per cent less time on the market and selling for five to 25 per cent above listing price.

In the home-staging process, you’ll be looking to do the following:

Maximize your home’s curb appeal

Declutter and re-arrange furniture to create a better flow and more open feeling to various rooms in your house

Depersonalize to reduce distractions and create the perception of extra space

A new twist on home staging is “virtual” staging, which leverages technology to digitally enhance photos to better demonstrate how a buyer could arrange and furnish various rooms and spaces. Virtual staging is ideal for vacant properties, which pose added challenges for sellers. It also eliminates the extra effort and costs associated with paying for professional staging or renting or buying furniture and accessories on your own.

Real Estate Lawyer Fees

Who Pays Lawyer Fees When Selling a House?

The seller and buyer are EACH responsible for paying their share of the legal fees associated with selling a house

What a Real Estate Lawyer Does for the Seller

On the seller’s side, the real estate lawyer’s role focuses on paying out any remaining mortgage on the house and ensuring a smooth transfer of the property’s title.

Other tasks performed include:

Reviewing the Contract of Purchase and Sale (CPS) and other legal documents

Assisting with the negotiation of the terms and conditions of the CPS

Preparing the deed for the seller’s house

Remedying deal and title issues as they arise

Closing the transaction

Ensuring all legal and financial conditions have been met

Exchanging legal documents with the home to the Buyer’s lawyer

What a Real Estate Lawyer Does for the Buyer

Real estate transactions involve complex legal documents and procedures that require a thorough understanding of property law. A buyer’s real estate lawyer conducts a title search to confirm that the seller has the legal right to sell the property and looks for any outstanding liens (debts), mortgages, or other encumbrances on the property. They also outline the terms of the buyer’s side of the Contract of Purchase and Sale (CPS), take care of the transfer of ownership and handle the registration of the transaction with the government.

Other tasks performed include:

Arranging for Title Insurance

Ensuring the buyer has a valid title upon closing

Ensuring property taxes are up to date

Calculating the land transfer tax due on closing

Drawing up the buyer’s mortgage documents

Closing the transaction and ensuring all legal and financial conditions are met

Exchanging legal documents from the seller’s lawyer

Buying and Selling a Home in Canada is Expensive

Buying and selling in the Canadian real estate market is an expensive endeavour. Before you start your journey to selling your property or achieving the dream of homeownership, it’s vital to educate yourself on the fees associated with selling a house – and real estate lawyer fees in particular. You should include them in your overall budget to ensure you aren’t surprised by these additional expenses and that you have enough money set aside to pay what’s due at the transaction’s closing.

If you're navigating this dynamic market, whether buying or selling, let's talk strategy. Our team can guide you through the most efficient processes, aiming to save you time, money, and hassle. Contact us today, and let's make your real estate journey successful!

What Happens When You Sell a House with a Mortgage in Canada

There are a variety of reasons that you might consider selling a house with a mortgage. The most common scenarios are when you need to move to a new location for a new employment opportunity, your family situation has changed with the addition of children or when your children head off to college or university or move out altogether. In each case, if your home no longer meets your needs, you may be contemplating breaking your mortgage contract. If you are considering selling a house with a mortgage, ensure you understand all the costs associated with breaking the mortgage contract.

The Costs of Breaking the Mortgage Contract

The cost of selling your home before the mortgage term ends and breaking the mortgage contract will depend on your mortgage type. If you chose your mortgage type without really understanding the ins and outs of an open versus closed mortgage, it’s time to get up to date on what you bought into when you signed on the dotted line.

Open Mortgages

When it comes to selling a house with a mortgage, if you have an open mortgage, you can sell your home without paying penalties for breaking the mortgage contract. That’s because an open mortgage is designed to provide greater flexibility without incurring financial penalties. While open mortgages still have a term, borrowers don’t have to wait until the mortgage matures to make changes.

You can make additional mortgage payments on a month-to-month or year-to-year basis without limitations, change your mortgage payment frequency, refinance, pay off, or break your mortgage before the end of your open mortgage term, all without incurring any prepayment penalties whatsoever.

However, the tradeoff for all this flexibility is that open mortgages come with higher interest rates than closed mortgages. Lenders charge a premium for allowing borrowers to break or change their mortgage agreement without penalties.

Open mortgages are usually chosen by homeowners who anticipate being able to make larger prepayments or pay off their mortgage sooner or whose life circumstances may require them to sell their homes before the end of the mortgage term.

Closed Mortgages

If you chose a closed mortgage for the lower interest rate or because you had no intention of selling before your mortgage term expired, you may be facing substantial penalty fees associated with wanting to break the mortgage now.

A closed mortgage has set conditions for the duration of the mortgage term. Once the mortgage contract is signed, the terms and conditions can’t be altered without incurring prepayment penalties.

Closed mortgages are known for their lack of flexibility. Lenders may offer some prepayment privileges, such as the ability to pay a certain percentage of the principal each year without penalty, but if you want to prepay more, pay off the mortgage entirely, refinance, or change the mortgage before the end of the term, a prepayment penalty will be levied.

Lower interest rates are the tradeoff for this lack of flexibility. Lenders are willing to provide more favourable mortgage interest rates on a closed mortgage in order to deter borrowers from breaking the mortgage contract or making additional prepayments.

Closed mortgages are usually chosen by homeowners who expect to remain in their recently purchased home for at least the duration of the mortgage term. This option is also optimal if you don’t anticipate making prepayments above and beyond what’s allowed in the mortgage agreement.

As indicated, if you have a closed mortgage, there will be penalties for selling your home before the term is up.

The highest cost will be the prepayment penalty – the fee for breaking the mortgage contract. The prepayment penalty can be thousands of dollars and will vary based on the terms of your mortgage contract. There will also be administrative fees, appraisal fees, reinvestment fees, and a mortgage discharge fee, which removes the charge on your current mortgage and registers a new one.

You may also have to repay any cash-back or home equity line of credit you received when you got your mortgage. These fees can make breaking a mortgage before the term ends VERY pricey.

Options for Breaking a Mortgage Contract

There are options if you are thinking about selling a house with a mortgage. Some mortgage lenders may allow you to extend the length of your mortgage while beginning a new mortgage in a Blend-and-Extend option. In this option, the interest rates for the old and new terms are blended, and you won’t have to pay the prepayment penalty. However, you still may need to pay administrative fees.

Unfortunately, not every mortgage lender offers this option, so the only other choice is to break the mortgage contract. In this case, you may get a lower interest rate on your new home, but you will have to pay a prepayment penalty for breaking the contract. If you have a choice in whether you sell your home before the mortgage term ends, ensure that the benefits of breaking the contract outweigh the costs of paying the prepayment penalty and any other associated fees.

Pros and Cons of Selling a House With a Mortgage

It can be tempting to break your mortgage or sell your home if you see a lower interest rate or a home that better meets your needs in the market. But in some cases, you may not have much of a choice in the matter, like if you have to move for work.

Here are some of the pros and cons of selling a house with a mortgage and breaking the contract:

Pro: You may be able to get a lower interest rate and pay off the mortgage faster if you keep the payments the same. When moving into a new house, it is possible that you could get a lower interest rate than on your previous mortgage, and if you budget your mortgage payments as if you are paying into your old mortgage, then you could pay off your new mortgage early.

Con: You could end up paying more in the long run because of fees and prepayment penalties. The fees for breaking a mortgage before the term ends are very high, and even if you make higher payments on your new mortgage, there is no guarantee that the interest saved will be enough to cover the penalties. However, your mortgage advisor can run the calculations for you.

Pro: You may be able to lock in at a lower interest rate for the new mortgage term. Selling your house allows you to look for a lower interest rate for your new home, saving you money in the long run.

Con: You may no longer qualify for a mortgage under current economic conditions. Times are tough, and it could be that you are selling your house not to buy a new one but to move into a rental. If this is the case, again, it’s vital to ensure that the benefits of selling your home early outweigh the costs of the penalties.

What Mortgage-Breaking Penalties May Look Like

Many homeowners who decide to post a for-sale sign on their front lawn might be surprised to learn that they face a sizeable mortgage-breaking penalty, mainly because of how interest rates have evolved since 2019. According to Canada Mortgage and Housing Corporation (CMHC), in June 2019, the average conventional fixed mortgage lending rate for a five-year term was 4.23 per cent. By June 2021, it had fallen to 3.26 per cent. In October 2024, it surged to 6.49 per cent, then dropped back to 3.99 per cent in November 2024.

In order to capitalize on higher interest rates, mortgage lenders can use various techniques to impose penalties on borrowers before their loans expire. Industry experts assert that the most common formula banks use is the difference between the lender’s present rate and the contractual rate, which is also referred to as an Interest Rate Differential (IRD).

If you have a closed mortgage with a variable rate, you will usually be forced to pay three months of interest. If you have a closed mortgage with a fixed rate, you will either pay three months’ worth of interest or the IRD amount, whichever is GREATER.

If you’re considering selling a house with a mortgage, you need to do the math:

Suppose you bought your property when interest rates were high, using a fixed-rate/closed mortgage option with a five-year term at 6.59 per cent. Let’s also suppose that you still have 24 months left in the term, and you still owe $300,000 but want to break the mortgage and sell now.

Three Months’ Interest Calculation:

Outstanding balance of your mortgage:

$300,000

Multiply the outstanding balance of your mortgage by the annual interest rate on your mortgage:

$300,000 x 6.59% = $19,770

Divide the answer by 12 months to get the monthly interest payable per year:

$19,770/12 = $1,647.50

Multiply the answer by 3 (months)

$1,647.50 x 3 = $4,942.50

Total Three Months’ Interest is $4,942.50

Interest Rate Differential Calculation:

Current mortgage interest rate:

6.59%

Current Interest Rate on a 3-Year Term:

4.74%

Rate difference between your mortgage rate and current interest rate:

1.85%

Multiply your mortgage balance by the rate differential to get the interest differential for 1 year:

$300,000 x 1.85% = $5,550

Divide this amount by 12 to get the amount for 1 month:

$5,550.00/12 = $462.50

Multiply this amount by the number of months left in your term:

$462.50 x 24 = $11,100

Total Interest Rate Differential Penalty is $11,100!

In this case of a closed/fixed rate contract, the estimated penalty for selling a house with a mortgage, is $11,100 – since it is the greater of the results for the Three Months’ Interest versus Interest Rate Differential calculations – a sizeable chunk of change!

To lighten your financial load, you can endeavour to trim your penalties by taking advantage of prepayment features. You can either pay a portion of the mortgage early without incurring penalties or max out your prepayment options, meaning you will lower the total balance without triggering added costs.

In the end, sellers should consider a couple of things before selling their home before mortgage expiration:

The first is requesting a payoff quote. Speak with your mortgage lender and obtain a payoff amount, which is the amount owed on the loan.

The second is calculating your home equity. How much equity do you have in your home? This could play an important role in your decision-making as if your property has substantially appreciated since you bought it and there’s a significant difference in the latest market value of your home and the remaining mortgage balance – even a large penalty like the one we calculated above could be justifiable.

When Do You Stop Paying a Mortgage When Selling a House?

If you pay off your mortgage BEFORE you sell your house, your mortgage payments stop when you pay off any applicable penalties, administration fees, appraisal fees, reinvestment fees and mortgage discharge fees.

If you break your mortgage while still owing, once you sell, part of the monies you receive will be used to pay off any relevant penalty fees, plus the remainder due on your mortgage, effectively ending the monthly payments on your old mortgage.

Additional Penalties for Selling a House Before 1 Year in Canada

While principal residences in Canada are not subject to capital gains when sold, investment properties do not share this benefit. So, if you’re considering selling a house with a mortgage – and it happens to be an investment property or a secondary home – if you sell it within a year of purchasing it, you’ll not only pay penalties for breaking the mortgage but you’ll also owe capital gains tax on 50 per cent of your profits.

Gather All the Information

Before selling a house with a mortgage, make sure you understand the costs associated with breaking your mortgage contract. It’s also a good idea to speak with a mortgage adviser, as they can provide you with valuable information needed to help navigate selling your home before the mortgage term ends.

Finally, check in with your real estate agent to ensure you have all your bases covered before you make a final decision.

If you're navigating this dynamic market, whether buying or selling, let's talk strategy. Our team can guide you through the most efficient processes, aiming to save you time, money, and hassle. Contact us today, and let's make your real estate journey successful!

Source: REMAX CA

Although the number of houses for sale in Canada jumped by near-record amounts in April, a “calmer housing market” has kept prices down and helps improve the chances of a Bank of Canada rate cut, says BMO’s chief economist.

“When it comes to Canadian housing, calm is good,” Douglas Porter wrote in an analysis of the latest data from the Canadian Real Estate Association (CREA).

New listings rose 2.8 per cent from March to April, but seasonally adjusted sales dropped 1.7 per cent over that period, according to the CREA data. That bump in supply and drop in demand are what pushed up the total number of home listings by 6.5 per cent.

Porter notes that “soft activity in the priciest cities” — sales were down 3.4 per cent month-over-month in Montreal and Toronto and down roughly six per cent in Calgary, Ottawa and Halifax — helps explain why prices dropped 1.8 per cent compared with April 2023. The lack of buyer enthusiasm, Porter writes, has kept “a tight lid on prices, a welcome development given the extreme unaffordability in the housing market.”

In terms of interest rate cuts, Porter says the upshot of the market’s relative calmness is that governors will worry less that a future cut would “spark a major flare-up in prices.”

“At the margin, cooler home prices and more ample listings slightly increase the chances of rate relief in coming months.”

With that said, Porter notes that prospects for housing affordability in the future remain worrisome due to the sluggishness in new building. Housing starts this year will “struggle to hit” last year’s 240,000 mark, which itself is only half as many as the 2024 federal budget target, Porter writes.

That, coupled with the fact that most of the past year’s new housing starts are multi-unit buildings, which take longer to build, “suggests that new supply will not come riding to rescue for strained affordability soon."

If you're navigating this dynamic market, whether buying or selling, let’s talk strategy. Our team can guide you through the most efficient processes, aiming to save you time, money, and hassle. Contact us today and let's make your real estate journey a success!

Source: Yahoo Finance

Canadians can expect the Bank of Canada to start providing some respite this spring as the central bank “slowly but surely” moves towards its first interest rate cuts, says Desjardins Group.

Chief economist Jimmy Jean says Desjardins is forecasting the first rate cut in June, but it could “easily” arrive as soon as April if inflation and the economy slow more than expected.

“We are seeing the damage caused by that very aggressive monetary policy,” Jean said in an interview with the Financial Post’s Larysa Harapyn. “It’s time to cut rates.”

After the first cut, Desjardins expects the central bank will reduce rates by 25 basis points at every meeting this year and into 2025. By the end of next year, it predicts interest rates will be roughly half of what they are now.

That reduction would put the Bank of Canada’s key overnight rate — currently at five per cent — at 2.5 per cent by the end of 2025, according to Desjardins’ forecast.

The Bank of Canada doesn’t have the same margin of error as the United States Federal Reserve to keep rates higher for longer because “our economy is much more sensitive to interest rates,” said Jean.

The U.S. economy had “a spectacular (year) by all stretches of imagination” in 2023, he said. “All the numbers have defied expectations. Even the Fed has been surprised by the strength.”

Canada’s economy, on the other hand, has already fallen into recession when viewed on a per-capita basis, said Jean.

The economist expects wages will start to come down this year, providing the “Bank of Canada with further confidence that it’s time to cut rates.”

Bank of Canada closer to inflation target than it thinks

Inflation data is no 'slam dunk' for Bank of Canada rate cut

Inflation rate slows more than expected

Lower borrowing costs should help the economy escape a “significant” recession, but 2025 will still be challenging because of mortgage renewals.

When the mortgage renewal cycle is done, the average Canadian will have seen their payments rise by about 34 per cent. Variable-rate payments are up 54 per cent.

“That’s very significant,” Jean said. “The consumer is clearly under pressure here.”

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source: Financial Post