## Land Transfer Tax (don’t forget it)

The Land Transfer Tax is one of those interesting pains in the arse (in Ontario) that bites you when you are thinking about buying a house or property. I was very lucky that when I bought my first house, I didn’t have to pay the land transfer tax, because I had used a Ontario Home Owner Savings Plan (long since gone), which had this as its major bonus (for 1st home buyers only) not having to pay the Land Transfer Tax. This forgiving of the Land Transfer Tax on first homes has been replaced by the  Land Transfer Tax Refund for First-time Homebuyers (please read that carefully).

Unfortunately the second house I bought I had to fork out my land transfer tax, and I grumbled a great deal about it. This cost is one of those forgotten costs that is rarely spoken of, until closing costs are discussed (the danger is you might buy less house if you thought about it as part of your purchasing price), but you should think about it before you make an offer on a house.

## Land Transfer Tax Calculation

You could try to calculate your Land Transfer Tax with a Calculator

From an Ontario Government page, the tax is calculated in the following way:

The tax rates on the value of the consideration are as follows:

Amounts up to and including \$55,000 -0.5 %

Amounts exceeding \$55,000 up to and including \$250,000 - 1.0 %

Amounts exceeding \$250,000 - 1.5 %

Amounts exceeding \$400,000 where the land contains one or two single family residences – 2.0 %

For the definition of “single family residence,” as defined in subsection 1(1) of the Act please see the end of this bulletin or the Act.

On the basis of that simple formula for residential properties, you could put this in your Excel-like spreadsheet and get the right answer (based on the calculation proposed on the government web page):

`=IF(B4<=55000,(B4*0.005),IF(B4<=250000,((B4*0.01)-275),IF(B4<=400000,((B4*0.015)-1525),((B4*0.02)-3525 ))))`

Where the B4 cell holds the actual selling price of the residential property. An example output might be:

 Price \$500,000.00 Land Xfer Tax \$6,475.00

Easy enough to figure out, but don’t forget it is there! If you are buying a  \$1/2 Million dollar house \$6475 may seem like chump change, and if you think so, please stroke me a cheque for that amount, and see how it feels then.

## Nobody Calls it House Poor?

That is an expression that you don’t hear much these days, and I wonder why it seems to have evaporated as a term when purchasing a house? Very rarely do I hear of Realtors using this expression to dissuade potential buyers from binding themselves up in too much long-term debt (if anything the opposite is true). My guess is the code phrase to other realtors would be for buying too much house now, might be “buying a house they can grow into“.

With  the current rate of interest for mortgages, it seems like a great idea to take on as much house as you can especially if you are young because you have so many things ahead of you:

1. You will need more space because you are going to have kids
2. You will make more money soon, because your career is only starting

This House MIGHT be a bit of a stretch for you, but you can grow into it.

Yes, a real estate agent told me that, in 1990 when we were looking at our first house, but I didn’t fall for it, and back then our first mortgage rate was 12.9% so we locked in for 5 years (that was a great deal back then!).  We didn’t actually over buy at the time, because with interest rates so high, adding more to the principal meant a higher monthly payment.

These days you can get a mortgage at 2.95% (at best), thus adding more principal wouldn’t change much. You might even be tempted to borrow more money to:

1. Get some new appliances for your house
2. Consolidate your credit card debt
3. Add in your moving expenses, land transfer taxes and maybe a nice vacation

At that rate of interest why not?

Allow me to be clear in my answer, “What are you NUTS ?!?“. We are living with historically low-interest rates, which will eventually go up, what do you do when that happens? Assuming the rates can’t go up because of the fragile economy is going to catch a bunch of folks off guard is my guess.

Anybody else ever heard the expression House Poor lately?

## Housing Bubble

While the data here is dated, it still is an interesting graph.

So I like this graph just because it explains why folks in the U.S. are just so worried about the housing “bubble”, given how housing prices have increased so out of proportion from what they have been historically. Very interesting stuff.