Property Taxes and your new home.

It is best not to let the thrill of buying a new home be dampened by not considering the impact of property taxes on your purchase.

Start off on the right track by deciding which method of payment is right for you and for you budget.

You have the option of paying property taxes directly to the municipality or by having your financial institution pay them on you behalf.

When choosing option two, your bank collects funds from each mortgage payment and saves them in a special property tax account.  To cover the first tax bill, banks usually do what is called a tax hold-back from the initial mortgage advance.  The bank calculates what it thinks the first tax bill will be and holds those funds back at time of closing the mortgage.

When buying a newly constructed home things can be a little more complicated because property taxes may not have been assessed yet for the area.  You may at first pay taxes based only on the value of the land.  A municipal assessment may take up to three years at which time your taxes will be based on the value of land and home and you many find yourself owing back taxes! 

If land value alone generated a tax bill of just $800 but three years later land and home value generated taxes of $2,400, you will find your self owing back taxes of $3,200 (the difference between $800 and $2,400 for two consecutive years.)  Add the tax bill for the current year and your total bill three years into owning your new home could be $5,600.

It’s a good idea to research property taxes in the area to better prepare you for the bill once the formal tax assessment has been completed.

Always be an informed client.

For more information contact your Toronto Mortgage Broker at 416-920-9931