When Does the Seller Get Paid After Closing in Ontario?

If you are selling a home, the day the sale closes is rarely the moment you can spend the money. Several steps happen first, and your lawyer has to confirm them before releasing anything to you.

This article explains what stands between the sale price and your bank account, what is taken off along the way, and what commonly causes delay. It describes how things generally work in Ontario. Your own timing depends on your agreement and your lawyers, so confirm the details with yours.

Why the money is not instant

On closing, the buyer's side submits the transfer for registration and the funds are arranged through the lawyers. The tax on the transfer is payable when the conveyance is tendered for registration or before, and for electronic transfers it is tendered when submitted through the electronic system.

Your lawyer then pays out what must be paid, such as your existing mortgage, and deals with the adjustments. How quickly your lawyer releases the balance, and whether it arrives the same day or later, depends on your lawyer's process and your bank, so ask for the expected timing before closing day.

What comes off the sale price before you are paid

A seller does not pay land transfer tax on a sale. The buyer pays it when tendering the transfer. Your costs are the real estate commission, HST on that commission, your legal fees and disbursements, any mortgage payout or penalty, and adjustments.

No HST is generally charged on the resale price of a typical used home sold by an individual, because those sales are usually exempt. There are exceptions, such as a seller who claimed input tax credits on the purchase or improvements.

Your mortgage payout and what it can cost

Paying off a mortgage because you sell can trigger a prepayment penalty. Porting the mortgage is only an option if you are buying another home, and your lender can tell you whether it is available. The penalty is usually the higher of three months' interest on what you still owe or the interest rate differential.

As an example, on $200,000 at 6% with 36 months left and a posted rate of 4%, three months' interest is $3,000 and the differential is $12,000, so the penalty is $12,000, plus possibly an administration fee. That amount comes out of your proceeds.

Ontario law also has notice rules. A borrower paying principal early must give at least three months' written notice, or pay three months' interest instead. For a mortgage not payable until more than five years after its date, the borrower may pay it off after five years by paying the amount due plus three months' interest, with no further interest chargeable. Corporate borrowers are excluded from the federal rule. Ask your lawyer which rules apply to your mortgage.

What commonly delays your payment

• Closing on a weekend or holiday. Document registration is a business-day activity, and registration is not allowed on statutory or government holidays. Confirm the current hours and holiday schedule with your lawyer.
• A mortgage discharge that is hard to obtain. If a lender cannot be found or a proper discharge cannot be obtained without undue delay, a court may permit payment into court and order the mortgage discharged.
• Penalty or payout figures that are not final. Your lawyer needs a current payout statement from your lender.
• Missing documents or signatures. Incomplete paperwork can hold up registration and therefore your funds.
• A tenant in the property. A buyer who takes title steps into the landlord's role under the tenancy law, so deposits and notices can complicate the adjustments.

What to do next

• Ask your lawyer when they expect to release your balance and how: bank draft, wire or direct deposit.
• Request your lender's payout statement early and ask whether a penalty applies.
• Check whether closing falls on a weekend or holiday.
• Do not commit to a purchase deposit or move that depends on same-day funds unless your lawyer confirms the timing.
• Keep records of the sale for your tax return. Designating the home as your principal residence is reported on Schedule 3 of the T1 return, and for sales from 2017 on Form T2091.

If you are buying and selling on the same day, or the sale involves an estate or a tenant, speak with a lawyer early, because the timing of each step affects the others.

Frequently asked questions