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Property Taxes: What Are They and How Do They Relate to My Mortgage?

What are property taxes?

Everyone who owns a home has to pay property taxes. These taxes pay to run our communities – garbage and snow removal, community programs, water supply and waste treatment, social and children’s services, policing, fire protection, emergency response programs, public libraries, parks and recreation, education—basically everything you rely on in your day-to-day life.

How are property taxes calculated? Property taxes are calculated by the assessed value (known as MPAC Value … which is NOT the purchase/sale price paid) of your home multiplied by your city’s current tax rate. This amount can fluctuate year to year based on changes in these two variables.

How do I pay my property taxes? There are two main ways to pay property taxes: through your mortgage payment or you pay them directly to the city yourself.

Property taxes paid through the mortgage lender:

If you are purchasing a home and have less than 20% down meaning you will have an ‘CMHC insured’ mortgage most lenders will make it mandatory that they pay the property taxes on your behalf. That means that with every mortgage payment you make the lender will also collect an additional amount to be placed in a tax account for future tax payments. Most lenders will pay the city twice a year on your behalf. You will still receive a property tax statement from the city for your records.

***IMPORTANT: We often find that property tax payment installments are not fully explained to homeowners when they purchase a house. (hence us writing this handy-dandy blog) Since some people pay their property taxes up front for the entire year, you will be responsible to repay the portion of the property taxes to the previous owner. Also, depending on the time of year that you close on your new home, even though the lender is collecting property taxes on your behalf you may be responsible for the next property tax installment directly to the city.

Solution: ASK YOUR LAWYER to clarify on closing if you are responsible for the next payment so you don’t fall into arears. (Your Mortgage Broker should remind you and communicate with solicitor to help ensure this takes occurs)

Paying your own taxes:

If your taxes are not being paid through your mortgage, you have to arrange to pay them yourself. To find out what your city’s options are you can visit their website (ex. Toronto.ca) Most cities have three options you can choose from for paying your own taxes.

1) Paying for the full year upfront.

2) Paying in 4 installments, 2 being your interim tax payments usually due in February & April, the other 2 the final tax installments in June & September.

3) 10 month pre-authorized payment plan that you set up directly with a city & they collect 1/10th of your property taxes the 1st of the month with November & December off. The benefit of this option is that it gives you some extra cash flow during the holiday season & you know the money is going directly to the city and not sitting in a lenders tax account collecting interest for them & not you.

4) Interim Tax Bil, you may be responsible for the existing tax bill on the property that you purchase. This could be as high as half your annual property taxes (i.e. if  the annual property taxes is $5000 per year, you may be responsible for  $2500) The exact amount will be known by the lawyer at closing.

*We have almost every city’s pre-authorized tax form on file for Ontario if you would like to set your payments up just ask us for help! Live in Burlington? You can find everything you need here as well: Burlington.ca

If you still can’t make up your mind – ask a professional! We are here to help guide you through these decisions and help you decide what will work best for YOU.

About the author...

Here to help inform, educate and represent you in the home financing process.

View all posts by James Loewen

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