Who Pays What at Closing When Selling a Home in Ontario

The number on the offer is not the number that lands in your bank account. Between the sale price and your proceeds sit a handful of deductions, and some of them only become clear in the last week before closing.

This article walks through the costs sellers commonly meet in Ontario, which ones depend on your own contracts, and how to get real figures early. Exact amounts depend on your listing agreement, your mortgage and your agreement of purchase and sale, so treat this as a map and not a quote.

The main categories of seller costs

Most sellers should expect to look at the same short list of items. The amounts differ for every sale, so the useful question is where each figure comes from.

Ask your lawyer for a draft statement of adjustments and an estimate of net proceeds before you commit to your next purchase, so you know what you will actually have to work with.

Your mortgage: payout and prepayment penalties

If you still have a mortgage, the payout is one of the main items to plan for. The balance is the easy part. The penalty for ending the contract early is the part that surprises people.

The Financial Consumer Agency of Canada says a prepayment penalty is usually the higher of three months' interest on the balance and the interest rate differential, often called the IRD. Lenders typically use the IRD when your rate is above the current market rate and you signed less than five years ago.

To show the scale, the FCAC gives an example of a $200,000 balance at 6% with 36 months left. The IRD was $12,000 against $3,000 in three months' interest, so the penalty was $12,000, and an administration fee may also apply. Your own figure depends on the amount prepaid, the months left, interest rates and your lender's method, and many banks publish penalty calculators.

There is also a federal rule for longer mortgages. On a mortgage not due for more than five years from its date, the borrower may pay it off after the five years by paying principal and interest plus three months' further interest in lieu of notice. It does not cover mortgages given by corporations or certain prescribed mortgages.

Ways to reduce or avoid a penalty

• Port the mortgage. Porting moves your existing rate, terms and conditions to a new home, so you do not break the contract or sign a new one, and the FCAC suggests asking your lender whether yours can be ported.
• Use your prepayment privileges. Prepayments within the lender's privileges generally carry no penalty, but they vary by lender and unused amounts usually do not carry over.
• Check for restrictions. Some lenders restrict prepayments close to the contract break date.
• Look at your timing. If the penalty would be large, waiting until the term ends allows a lump-sum prepayment without penalty, and an open mortgage allows prepayment without penalty.

Do not assume that moving your mortgage to a different lender avoids the charge. Transferring to another lender before the term ends can trigger a prepayment penalty.

The discharge of your mortgage on closing

On closing, the lender's charge has to come off title. In electronic registration, the Law Society of Ontario advises lawyers to ask an institutional lender early whether the lender or the lawyer will prepare and register the discharge, and to get written confirmation if the lender will register it.

Your lawyer's closing duties include delivering the discharge funds to the lender in a timely manner and getting registration particulars to the buyer's lawyer. Where the lender registers its own discharge, the lawyer's undertaking may be limited to causing a discharge to be registered.

If you have a private mortgage, note that the Law Society's position is that, without an express term in the agreement of purchase and sale, lawyers should not give or accept personal undertakings to obtain and register discharges of private mortgages after closing. Raise this with your lawyer before you sign an offer.

Costs that catch sellers off guard

• Rented or financed equipment. Ontario consumer guidance tells homeowners signing water heater contracts to ask whether they will be responsible for transferring the contract on a sale or paying cancellation fees. Read your contract and check what your agreement of purchase and sale says about it.
• Old security notices on title. Since June 6, 2024, a Notice of Security Interest cannot be registered on title for consumer goods, and existing consumer-goods notices were deemed expired that day. If something still shows on title, ask your lawyer.
• Septic system records. A buyer of a sewage works becomes responsible for all obligations associated with it, and the province advises buyers to request approvals, operation and maintenance records and past inspection reports.
• Tax reporting. Selling a principal residence must be reported on your T1 return for the year of sale on Schedule 3, even if the whole gain is exempt.

If you owned the home for less than 365 consecutive days, the gain is generally treated as business income and not a capital gain, subject to listed exceptions such as death, serious illness or an eligible relocation. An accountant can confirm how this applies to you.

What to do next

• Ask your lender for a written payout and penalty estimate for your expected closing date.
• Ask whether your mortgage can be ported or whether prepayment privileges apply.
• Read your listing agreement for the commission terms.
• Ask your lawyer who will register the discharge and get it in writing if the lender will.
• Check water heater, solar or similar contracts for transfer or cancellation terms.
• Request a draft statement of adjustments and an estimate of net proceeds.
• Speak to an accountant about reporting the sale on your tax return.

Penalties and contract terms vary, so it is worth having a lawyer review your numbers before you sign a purchase of your next home.

Frequently asked questions