home is the most expensive thing most of us will ever buy. But the true cost of homeownership is even steeper than many of us realize, according to a new survey commissioned by Intact Insurance.
About 20 per cent of homebuyers in Canada forget to factor in the cost of home insurance and maintenance fees, shows a poll conducted by Angus Reid for Intact.
The study also suggests that many current and prospective homeowners likely got a rude awakening when the Bank of Canada decided this summer to start hiking interest rates, as 17 per cent of Canadians fail to take into account the possibility of climbing interest rates when buying a home.
Other unexpected costs include home inspection and legal fees, mortgage insurance, as well as GST/HST, land transfer and property taxes, according to RateHub.ca, an online rates-comparison site.
Increasingly, though, homeowners also will also have to contend with another factor that could significantly impact their bottom line: climate change.
According to Intact, a whopping 60 per cent of Canadians say that they do not factor the impact of things like flood and wildfire risk.
Here’s a closer look at many of the line items homebuyers often forget to include in their home-buying budget:
If you own a home, you need to have home insurance. Your premiums will depend on a number of factors, such as the value of the property and its contents, its location, as well as its structural condition and specific features, said Intact Property claims manager Marc Barbeau.
Barbeau advises homebuyers to turn to an insurance broker to get the best deal on a home insurance policy that fits their needs. It’s also a good idea to ask the seller about the property’s claims history, which might uncover hidden issues that might not be immediately apparent.
Also, be sure to let your insurance know about any renovation work, which could affect the value of the property, said Barbeau.
A home requires constant upkeep. Many homeowners take up two maintenance projects per year, said Barbeau: It’s important to budget for those ongoing costs.
And whether you just replaced an aging furnace or the shingles on your roof, let your insurance know, he added.
Home inspection costs
Speaking of maintenance costs, you don’t want to walk into your new home and find a number of urgent fixes for which you didn’t budget.
That’s one of the reasons why you should pay for a professional home inspection, which will add $500 to your budget, according to RateHub.
You might also need additional, issue-specific inspections, such as a termite check if you know you’re buying property in an area where other homeowners have had to battle the infesting insects.
Legal fees include the cost of a real estate lawyer, who will take care of most of the paperwork and also ensure that whoever you’re buying from has full ownership of the property, with no competing claims on the title deed. That will add a minimum of another $500 plus tax to your costs, according to RateHub.
If you can’t make a downpayment of at least 20 per cent of the value of your home, you must buy mortgage default insurance. This protects your lender (not you) in case you default on your mortgage payments.
The cost of mortgage default insurance depends on the price of your property, and premiums have climbed a bit since Ottawa introduced new mortgage rules in 2016. According to RateHub, if your downpayment is between 5 per cent and 9.99 per cent of the value of your home, the insurance costs 4 per cent of the purchase price. If the down payment is between 10 per cent and 14.99 per cent, mortgage default insurance is 3.1 per cent. And for a down payment of between 15 per cent and 19.99 per cent, you’ll pay 2.8 per cent. This is a one-time cost: You can pay it in a single lump sum or add it to your monthly payments.
Also, beware of the difference between mortgage default insurance, which is mandated by the government and generally sold by Canada Mortgage and Housing Corp., and another type of mortgage insurance that is sold by the banks. The latter is widely regarded as a bad deal by personal finance experts, as Global News has previously reported.
Taxes, taxes, taxes
Buying a home invariably comes with a steep tax bill.
A chunk of your money will go to the provincial government (and sometimes the municipal government) for what is known as the land-transfer tax (LLT), which is calculated as a percentage of the purchase price of your home. “Much like income tax, the LTT is progressive. You pay a marginal rate depending on the value of the home,” according to RateHub.
Thankfully, some jurisdictions (Ontario, P.E.I., British Columbia, and the City of Toronto) offer a rebate of the LTT for first-time homebuyers.
Once you own a home, you’ll have to pay property taxes every year. These are generally between 0.5 per cent and 2.5 per cent of the assessed value of your property, according to RateHub.
If the home you’re buying or building is new, you’ll need to pay GST or HST on it.
Climate change, aka more home insurance and/or maintenance costs
Changing climate conditions are making flooding and fires ever more frequent, with the former, in particular, becoming a bigger and bigger risk even for a home nowhere close to a body of water.
There are two types of dangers tied to the sudden, heavy rainfall – also known as microbursts” – that is becoming ever more frequent in a warming planet.
One is the risk of water seeping in through windows, doors and cracks.
The other is water overflowing into basements and homes from backed up sewers, something that “we’re seeing that more and more and more,” said Intact’s Barbeau.
Neither is generally covered by your plain-vanilla home insurance, which only covers flooding from things like a broken pipe.
To protect your home from the dangers of microbursts, you’ll probably need to buy additional insurance.
Flood insurance will do for sewer backups, whereas overland flood insurance is what you need if there’s a risk of water coming in from above ground, as Global News has reported.
But flood risk could also add to your homeownership costs in other ways. You might have to install one or more sump pumps, which remove water that accumulates in the so-called sump basement, generally found in basements. You might also need a backwater valve, which helps to prevent flooding from sewer backup. These valves cost between $2,500 and $3,000, though many municipalities offer large subsidies for homeowners who decide to buy one.
That’s why it’s important to have a ballpark idea of climate change-related risks as you get ready to buy a new home, said Barbeau.
Location is a big factor that might determine both your risk and your insurance premiums, he said. For example, if your home is in a rural area far from any fire stations, your insurance provider might push up your premiums.
If you buy in a flood plain or other area notoriously prone to flooding, you might not even be able to buy flood insurance.
But the risks aren’t always so obvious. Especially for flooding, there are much more subtle red flags to look out for.
For example, even a location at the bottom of a downward-sloping street increases the risk of flooding.
It’s important to look at the grading around the home to know whether rainwater will pool around it or be channelled away from the foundation, said Barbeau.
Another thing to consider is whether the home is in a neighbourhood with older sewer systems that might be more easily overwhelmed by sudden, heavy precipitation, he noted.
“Canadians should contact their broker and ask: Has this region been subject to any flooding?”
Some homebuyers might even be able to ask their local municipality for records of where they’ve recently dispatched crews to unplug sewer systems, he added.
In general, homebuyers should increasingly include the potential costs tied to climate change to their overall homebuying and homeownership budgets.