Unit 1 Home Finance

Essential Mathematics 40S
Home Finance

Home Finance
• The purchase of a home will likely be the
largest purchase that you ever make.
Learning how to make decisions regarding
the purchase of a home and the many
costs associated with home ownership will
help you to make educated decisions
about your future.

Home Finance
• In this module you will learn how to solve problems
and make informed decisions regarding the
purchase and maintenance of a home. This will
involve home insurance, mortgages, home
maintenance, property taxes and the benefits of
home ownership. You will also learn how the
Gross Debt Service Ratio is used to determine
how much people can afford to spend on a home.

Mortgages
• Buying a home is the largest purchase that most
consumers will make in their lifetime. In most
cases, because it is such a large purchase, people
do not buy the home with cash. They often will
need to borrow money from a financial institution
(bank, credit union, mortgage broker, etc) in order
to complete the purchase. This type of loan is
called a mortgage.

Mortgages
• Do a web
search, or use
other
resources
available to
you, to
complete your
worksheet.

Mortgages – Fixed vs Variable Rate

• Types of Mortgages
– Variable Rate Mortgage - A mortgage with an interest rate that changes
with the market. The rate changes each month, meaning that the portion of
your monthly payment that goes towards interest may go up or down each
month. However, your total monthly payment will probably stay the same.
– Fixed Rate Mortgage - With a fixed-rate mortgage, the interest rate is set
for the term of the mortgage so that the monthly payment of principal and
interest remains the same throughout the term. Regardless of whether rates
move up or down, you know exactly how much your payments will be and
this simplifies your personal budgeting.
– Closed Mortgage - A mortgage that has a fixed interest rate (usually lower
than an open mortgage rate) and a set, unchangeable term. You cannot
pay off a closed mortgage before the agreed end date without paying a
penalty.
– Convertible Mortgage - A mortgage that you can change from short-term
to long-term, depending on your financial needs.
– Open Mortgage - A mortgage that you can pay off, renew or refinance at
any time. The interest rate for an open mortgage is usually higher than a
closed mortgage rate.

Mortgages – Calculating Mortgage Payments
• In order to calculate the monthly mortgage
payment, you must make use of a amortization
table or a mortgage calculator.

Example 1
• Conrad Wiebe purchases a home for $120,000. He makes a down
payment of $40,000 and takes out a fixed-rate mortgage at 7.5% for
the balance of the purchase price. The mortgage is to be amortized
over 20 years.
Determine Conrad’s
monthly mortgage
payment.

Calculate the amount
of interest Conrad pays
during the 20-year
amortization period.

Example 2
• Matilda wants to purchase a home that is valued at $200 000 and she
has a down payment of $25 000. She has negotiated a mortgage with
an interest rate of 5.28% with an amortization period of 20 years. Use
the mortgage calculator to find her monthly mortgage payment.

Calculate the amount
of interest Matilda pays
during the 20-year
amortization period.

Example 2
• From the previous activity you determined that if Matilda borrowed
$175 000 to buy her home she ended up paying $282 376.80, of
which $107 376.80 went to the bank in interest. Recall:
$1176.57 x 240 payments = $282 376.80 - $175 000.00 = $107 376.80

• Let’s use these figures to look at several ways you may be able to
reduce the amount of interest paid on a mortgage.
• Consider the factors or variables we used to calculate Matilda’s
mortgage. Then take a moment to think of any ways that you could
suggest to Matilda that might reduce the cost of her mortgage.

Impact of a lower Interest Rate
• Matilda wants to purchase a home that is valued at $200 000 and she
has a down payment of $25 000. She is wanting to borrow $175 000
with an amortization period of 20 years, and was offered an interest
rate of 5.28%.
• In order to reduce the amount of interest that she will pay over the life
of her mortgage she has gone “shopping” around to other financial
institutions for a better interest rate. She has found one that will give
her an interest rate of 4.6%. Determine the amount she will pay in
interest over the life of this mortgage.

Impact of a larger Down Payment
• Matilda wants to purchase a home that is valued at $200 000. She
has negotiated a mortgage with an interest rate of 5.28% with an
amortization period of 20 years, and originally considered a down
payment of $25 000.
• However, she wants to decrease the amount of interest that she will
have to pay. So, she has decided to increase her down payment to
$50 000. Determine the amount she will pay in interest over the life of
the mortgage using a $50 000 down payment.

Impact of a shorter Amortization Period
• Another way that Matilda can decrease the amount of interest she will
pay is by paying the mortgage off quicker.
• Matilda wants to purchase a home that is valued at $200 000 and her
down payment is $25 000. She has negotiated a mortgage with an
interest rate of 5.28% but changes the amortization period to 15 years
instead of 20 years.
• Determine the amount she will pay in interest over the life of the
mortgage.

Practice
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Essentials of Mathematics 12 Text
Page 32
Questions 1, 2, 3, 5, 7

Mortgages – Payment Schedule
• You can gain a better understanding of mortgage
payments and interest costs by examining how each
monthly payment affects the mortgage. This can be done
with a schedule of mortgage payments chart.

The schedule of mortgage payments chart divides each
mortgage payment into the amount of the payment that
goes to pay interest and the amount of the payment that
goes to pay down the principal.

Example 1
• Write an amortization schedule for 3 months, given a
mortgage of $85 000 (after a $20 000 down payment), at
6% for 20 years.

– Essential of Mathematics Text (Page 28-29)

Example 2
• Matilda wants to purchase a home that is valued at
$200 000 and she has a down payment of $25 000. She
has negotiated a mortgage with an interest rate of 5.28%
with an amortization period of 20 years. Find her monthly
mortgage payment and then create a schedule of
payments for the first 7 payments.

Example 3
• Using the mortgage calculator found at:
http://www.canequity.com/mortgage-calculator/
• If you scroll further down the page, you will find this Monthly Payment
and Amortization Table. It will show the amount of the monthly
payment, which as you can see, stays the same for the entire
mortgage. You will also see that the payment is divided up into
principal and interest. Every time a person makes a payment on their
mortgage the amount they owe decreases. So as a result, the amount
of interest that they pay also decreases with each payment.
• .

Practice
HOME FINANCE Fusce
adipiscing elit. Vivamus et magna.
Mortgage Calculations
Worksheet #1

Practice

Home Insurance
• Home insurance protects you against mishaps that are
generally hard to predict and prevent. There are
insurance policies for homeowners, apartment
dwellers, condominium owners, and mobile home owners.
Homeowner’s insurance protects a homeowner against
damage and/or loss to both building and contents.
Tenant’s insurance protects a renter against damage
and/or loss to personal possessions. As well, tenant’s
insurance protects renters against damage they may
inadvertently cause to the building or other renters.

Home Insurance
• In Manitoba, you purchase home insurance
through an insurance company broker or agent.
• Your home insurance premium is the amount
that you pay in order to obtain your insurance.

Home Insurance PREMIUMS
• In addition to the company you choose, home
insurance premiums depend on the following
factors:
»Replacement cost of home
»Location of home
»Type of coverage
»Amount of deductible
»Available discounts


Replacement cost of home
• The replacement cost of a home is the amount it
would cost to replace the home and its contents if
it burned to the ground

Location of home
• Manitoba is divided into different areas for the purposes of calculating
premiums for homeowner’s insurance. For the purposes of this
course, Manitoba will be divided into the following four areas:
– Area 1(Metro Winnipeg)-homes that are located within the City of Winnipeg.
– Area 2 (Protected) – homes located outside Winnipeg but within 300 metres of a
fire hydrant.
– Area 3 (Semi-Protected) – homes located outside Winnipeg but within 12
kilometres of a fire hall.
– Area 4 (Unprotected) – homes outside Winnipeg and located more than 12
kilometres from a fire hall.

Type of coverage
• There are two basic types of home insurance, standard
(or broad) coverage and comprehensive coverage. Both
types of insurance offer the same protection for the
building but they differ in terms of the protection to the
contents. Comprehensive coverage will offer more
protection to the contents of a building than standard or
broad coverage.

Amount of deductible
• The deductible is the amount you must pay before the
insurance company pays you anything when you make a
claim. Most home insurance policies carry a $500
deductible which means you are responsible for paying
the first $500 of any insurance claim that you make. Most
insurance companies allow you to increase or decrease
the amount of deductible you will pay by adjusting your
premium.

Available discounts
• Most insurance companies will allow discounts if
your home has a burglar alarm, you are claim
free for three years, it is a new home, or the client
is over 50 years of age.

Internet Activity: Insurance Premium Quote

Tenants Insurance
Using Tables to Determine Tenant Insurance
Premiums
• In order to determine the amount that a tenant will pay to
insure their possessions (suite contents), you will need to
refer to Table 1-1, Tenant's Policy Rates.
• Please note that this table contains hypothetical examples
that have been developed for the purposes of this course.
Different insurance companies offer different rates and
the tables are usually more complex.

Tenants Insurance
Using Tables to Determine Tenant Insurance
Premiums

Tenants Insurance
Example 1
• Jane is renting an apartment and her possessions (the
contents) are worth $35 000. If she wants a tenant's
package policy with a $500.00 deductible and standard
coverage, find her annual premium.
• How much more will Jane have to pay if she would like a
$200.00 deductible rather than a $500 deductable?

Home Owners Insurance
Using Tables to Determine Home Owners
Insurance Premiums
• A homeowner owns not only their possessions but the
building as well. To determine the amount a homeowner
will pay to insure their building and possessions, you will
need to refer to Table 1-2 Manitoba Homeowner's
Insurance Rates.

Using Tables to Determine Home Owners
Insurance Premiums

Example 1
• The Chen family wants to insure their home and its
contents for $190 000 with comprehensive coverage. The
home is located in Metro Winnipeg and they would like a
$200 deductible. Use the Homeowner's Insurance Rates
Table to identify the annual base insurance premium
based on:
» the type of coverage
» value of the home with contents
» the insurance area they live in
» the deductable amount they want.

Example 2
• The Amir family owns a home with a replacement value of
$250 000. The home is located outside Winnipeg but
within 300 metres of a fire hydrant. The family chooses
standard insurance with a deductible of $500.00. Open
and refer to Table 1-2 Manitoba Homeowner's Insurance
Rates Table to identify the annual base insurance
premium based on:
» the type of coverage
» value of the home with contents
» the insurance area they live in
» the deductable amount they want.

Practice
• Essentials of Mathematics 12 Text
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Property Taxes
• Property taxes are a way for the local (Municipal)
government (e.g., a township, regional municipality, or
city) to raise money to provide services to the public.
• These services can include snow removal, road
maintenance, garbage disposal, and others. In this
learning experience you will learn about how property
taxes are actually calculated.

Property Taxes Internet Activity
• Open the Sample Statement of Demand for Taxes that is used in
Winnipeg. This is the type of statement that each homeowner in
Winnipeg can expect to receive to inform them of their annual School
and Municipal taxes.
• In your notebook or in a word processing document create a "T"
chart. On the left hand side list the numbered items on the chart that
you already know about. On the right hand side list the items you
know nothing about.
• When your list is done check out what some of the numbered
locations on the statement represent. Move your mouse pointer over
the numbers in red you will be given definitions or descriptions for
each of the items.

Municipal Revenues & Expenditures
• The three main levels of government are federal,
provincial and municipal. The City of Winkler would be an
example of a municipal level of government.
• Municipal revenue is the money that the municipal
government collects. The largest portion of municipal
revenue is collected through property taxes.
• Municipal expenditures refers to the money that is spent
by the government to maintain the municipality. Some
examples of municipal expenditures are police, education,
transit, and road repair.

Municipal Revenues & Expenditures
• In order for a municipality to determine the amount of
property tax the taxpayers must pay, it must first
determine the value of its taxable portioned assessment
base and the revenue it requires.

Unit 3 – Government Finances

Municipal Property Taxes – Property
Classification
• From the previous pages, you can see that the
major source of revenue for the City of
Winnipeg is property taxes. Most municipalities
have property taxes as their major source of
revenue.
• Owners of property must pay property tax to the
municipality in which the property is located.
Provincial legislation requires all property in
Manitoba to be classified for tax purposes.


Municipal Property Taxes – Property
Classification
• There are nine classes of property ranging from
residential property to commercial and industrial
property.
• The following chart lists the property classification for
properties in Manitoba.


Municipal Property Taxes- Portioned
Assessment Value
• The Province of Manitoba assigns a portion percentage to each of the nine classes
of property. The following chart lists the portion percentages of the nine classes of
property in Manitoba.

• The portioned assessment value of a property is the value of the property on
which the property tax is calculated. The portioned assessment value is determined
by multiplying the market value of the property by the portion percentage.

Note: The market value is the value that the property could be sold for.


Municipal Property Taxes- Portioned
Assessment Value

Example Problem #1
• Sarah Mahler owns a home in Flin Flon. The market
value of her home and land is $83,850.
– Find the portion percentage for the property.
– Find the portioned assessment of the property.


Municipal Property Taxes – Determining the
Rate of Property Tax (%)
• In order to establish the rate at which property
will be taxed, a municipality must first establish
a budget. From that budget, the total revenues
required is determined. From this revenue, all
other sources of revenue, such as provincial
grants, business taxes, licence fees, and user
fees, are subtracted. The balance is the amount
the municipality must raise with property taxes.


• The total revenue required from property taxes
is compared to the total portioned assessment
of all properties in the municipality. This ratio is
then expressed as a % rate of tax.

The following formula can be used to determine
this rate of tax:



Example Problem #2
• A municipality requires revenue of $4,500,000
to be raised from property taxes. The total
portioned assessment of all taxable properties
is $200,000,000. Find the tax rate expressed as
a percentage rate.


Municipal Property Taxes – Expressing
the Rate of Property Tax in Other Ways
• The rate of tax in the previous example
was expressed as a percentage (2.25%).
The rate of property tax can be expressed
in other ways.

Two of these are:
– cents per dollar
– in mills


Municipal Property Taxes – Expressing the Rate of
Property Tax in Other Ways

• Cents Per Dollar

The previous tax rate of 2.25% means 2.25 out of 100.
This can all be expressed as 2.25¢ out of 100¢ or 2.25¢
out of $1.00.

In terms of property taxes, it means that a property
owner would pay 2.25¢ of tax for every $1.00 of the
portioned assessed value of the property.


Municipal Property Taxes – Expressing the Rate of Property Tax
in Other Ways

• Mills
The most common way to express the property tax rate is as a mill
rate. A “mill” is really a metric term, much like a millimeter, where a
“mill” refers to a unit of one thousandth. In terms of a property tax
rate, one mill represents a tax of $1 for every $1000 of portioned
assessed value.
The formula for calculating the property tax as a mill rate is the
following:


Municipal Property Taxes – Expressing
the Rate of Property Tax in Other Ways

Example Problem #3
• A municipality requires revenue of
$4,500,000 to be raised from property
taxes. The total portioned assessment of
all taxable properties is $200,000,000.
Find the tax rate expressed as a
percentage rate.


Municipal & Education Taxes
• In the last lesson, municipal revenues and
expenditures were examined. The main source
of municipal revenues is collected from property
taxes. In this lesson, the property taxes of
homeowners will be considered in more detail.
• Homeowners in Manitoba pay property taxes
each year. Property taxes consist of both
municipal taxes and local and provincial
education taxes. In order to calculate property
taxes, the portioned assessments and property
tax mill rates introduced in the previous
lesson, will be used.


Municipal Taxes
• Municipal taxes support municipalities.
Municipal taxes consist of a General
Municipal Tax and Local Improvement
Taxes. The General Municipal Tax (GMT)
is calculated as follows:


Municipal Taxes
• Municipalities will often make
improvements to roads,
sidewalks, sewers, street
lighting, etc. The property
owners themselves pay
some of the cost of these
improvements.
• The following table lists the
local improvement charges
for the City of Winnipeg.
There charges are paid
annually by the homeowner
for the number of years
indicated.


Municipal Taxes
• Most Local Improvement taxes are based on the cost of
the improvements and on the frontage of the property.
For purposes of this course, the frontage is taken to be
the width of the front of your property.
Each Local Improvement Tax (LIT) is calculated as
follows:

The total municipal tax is the sum of the General
Municipal tax and the Local Improvement taxes. The
total municipal tax can be calculated as follows:


Municipal Taxes – Sample Problem 1
• Andre Hebert owns a home with a total
portioned assessment of $48,500. His annual
municipal tax rate is 23.435 mills.

The frontage of his property is 50 feet. His
property taxes include Local Improvement
Taxes for both boulevard construction and lane
paving.

Calculate Andre’s total annual municipal taxes.


Education Taxes
• Education taxes support the various school divisions in
the province of Manitoba.
Education taxes are also calculated using portioned
assessed property value and mill rate.
The mill rate for education taxes is usually not the same
as that for municipal taxes.

Education taxes are calculated as follows:

The education tax rate in this lesson is expressed as a
single mill rate. In reality, there are two education taxes,
each with their own mill rate.


Education Taxes – Sample Problem 2
• In the previous problem Andre Hebert’s
property had a portioned assessment of
$48,500 and total annual municipal taxes of
$1787.60.

As well as these annual municipal taxes, he
must also pay Education taxes. These taxes
are levied at a rate of 30.926 mills.
– Calculate Andre’s annual total Education tax.
– Calculate the total of Andre’s annual Municipal and
Education taxes.


Education Taxes – Sample Problem 3
• The Wallace family owns a home with a market value
assessment of $71,500 and a land assessment of
$13,500.
The municipal mill rate is 21.415 mills and the
education mill rate is 28.562 mills.
The property has a frontage of 50 feet. The family is
charged Local Improvement taxes for road oiling and
lane lighting.

– Calculate the total portioned assessed value of the property.
– Calculate the total annual Municipal taxes for the property.
– Calculate the total annual Education taxes for the property.
– Calculate the total annual Municipal and Education taxes.


Demand for Taxes

How is property in Manitoba
assessed?
• All property in Manitoba must be assessed using the
market value system. The assessed value of a property
should be equal to the most probable selling price at a
specific point in time. Market values will vary depending
on the size of the property, building style and the location.
• Properties in Manitoba are assigned a portion percentage
based on the type of property. For example, the portion
percentage for a residential property is 45%, farm
property is 30% and golf course is 10%.

assessed?
• This portion percentage is important because it is used to
determine the assessed value of a property. Then the
assessed value is used to calculate the amount to be paid
in property tax.
• To calculate the portioned assessment, you multiply the
portion percentage and the market value assessment.

Portioned Assessment = Portion Percentage x Market
Value Assessment

assessed?
Example 1
• Cindy Wells owns a home in Portage la Prairie. The
market value of the land is $60 000 and the building is
$175 000. The portion percentage for her property is 45%.
Find the portioned assessment of the property.

assessed?
Sample Solution:
• The total market assessment of the property is:
$60 000 + $175 000 = $235 000.
Portioned Assessment = Portion Percentage x Market Value Assessment

• 0.45 X $235 000=$105 750

45% of $235 000 is $105 750.00

• This is the amount that will be used to calculate
the amount of property tax to be paid.

Finding the Tax Rate as a Percentage
and as a Mill Rate
• In order to determine property taxes, each
municipality must establish a tax rate. The tax rate
can be expressed as a percent, as cents per
dollar or as a mill rate.
• This rate can be calculated once the municipality
has determined the amount of revenue it requires.

and as a Mill Rate
• The Property tax percentage rate reflects a tax
per $100 of portioned assessed property value.
The formula that each municipality uses to
determine its tax rate as a percentage is:

and as a Mill Rate
• Most municipalities express their property tax
rates in terms of mill rates. The mill rate reflects a
tax per thousand dollars. In terms of property tax
rate, one mill represents a tax of $1 for every
$1000 of portioned assessed value.

and as a Mill Rate
Example 1
• A Manitoba municipality has a total taxable
portioned assessment base of $525 000 000. The
municipality requires revenue of $13 000 000 to
meet its budget requirements. Calculate the
property tax rate in mills and express this mill rate
as a percentage.

and as a Mill Rate
Solution:

Calculating Municipal and Education
Taxes
• Homeowners in Manitoba pay property taxes
every year. These property taxes consist of both
municipal and education taxes. In order to
calculate property taxes, you will need to use the
portioned assessments and mill rates you were
introduced to in the previous section.

Taxes
• Municipal taxes are collected in order to support
municipalities. These taxes consist of a general
municipal tax and local improvement taxes.

• General Municipal Tax is calculated as follows:

Taxes
• Local Improvements are based on the cost of the
improvements as well as the size of your property. For the
purposes of this course, the size of the property will be
taken as the width of the front of the property. This is also
known as the frontage.
• Local Improvement Tax is calculated as follows:
Local Improvement Tax = Frontage X Cost of
Improvement per foot of frontage
• The costs of local improvements vary from municipality to
municipality and are based on the type of improvement.

Taxes
• Education taxes are collected by the municipal
governments on behalf of the various school
divisions in Manitoba.
• Education Tax is calculated as follows:

Taxes

• The total Municipal Tax is the sum of the General
Municipal Tax, the Local Improvement Tax and the
Education Tax.

Calculating the Total Municipal Tax
Example 1
• Doreen's property has a portioned assessed value
of $180 000 and the property has a frontage of 50
feet. The municipal mill rate is 16.120 and the
education mill rate is 12.450. Doreen's property
will be assessed a local improvement tax of $5.50
per foot for street lighting.
• Calculate Doreen's total annual tax bill.

Sample Solution:
• Municipal taxes = $180 000/1000 x 16.120 = $2901.60
• Education Taxes = $180 000/1000 x 12.450 = $2241.00
• Local Improvement Taxes = 50 feet x $5.50/foot = $275.00
• Total Annual Tax Bill = $2901.60 + $2241.00 + $275.00 =
$5417.60

Sample Solution:
• In some regions, people pay property taxes once a
year, while in others taxes may be due on a
quarterly, semi-annual or monthly basis.
• If Doreen decides to pay monthly, what would her monthly
tax bill be?
• $5417.60/12 = $451.47

Practice
adipiscing HOME FINANCE
elit. Vivamus et magna. Fusce
Property Taxes
Worksheet #3

Gross Debt Service Ratio (GDSR)

• Before you even start looking for a home, you
need to know exactly how much home you can
afford-otherwise, you could spend time looking at
homes that are out of your budget range. If that
happens, it's hard not to be disappointed later
when you view less expensive homes.
• It all starts with a general rule that household
expenses cannot exceed 32% of your gross
income.

• The Gross Debt Service Ratio or GDSR is used to
determine if a property is affordable.
• The GDSR is the ratio between gross income and shelter
costs. The lender will set an upper limit on this ratio. As a
general rule mortgage lenders will not allow you to spend
more than 32% of your gross income on shelter costs.
• If the sum of the mortgage payment, property
taxes, condo fees and heating costs exceeds the lenders
stipulated Gross Debt Service Ratio, the mortgage will
likely be declined, or a revised loan amount offered.

• The formula used to calculate the Gross Debt Service
Ratio is:

• Remember, that the Gross Debt Service Ratio is based
on gross pay and not net pay. The closer the Gross Debt
Service Ratio is to 32% the more difficult it would be to
budget for other expenses.


Example:
• You would like to purchase a condominium for $195 000.
You are able to make a down payment of $42 000. The
bank will finance this property at 6% over 25 years. Your
gross monthly income is $4000. The annual property
taxes are $3100 and the monthly utility costs are $250.
Calculate the monthly mortgage payment and the gross
debt service ratio. Will the bank approve your request for
this mortgage? Explain.

Sample Solution 1: (Using GDSR formula)
• Monthly Mortgage Payment = $978.90 (Using a mortgage
calculator)

GDSR = 37.2%
• Since the GDSR calculated for your situation is
greater than 32% the bank will likely deny your
request for the mortgage.

Sample Solution 2: (Using online calculator)

Practice
GDSR
Worksheet #4

Additional Costs To Purchase And
Maintain A Home
Another factor to consider when buying a home is the
additional costs you may incur at the time of purchase. If
you do not have money available to pay for these costs, you
may need to add the additional costs to the mortgage. Or,
you may need to subtract these additional costs from your
down payment. In either case, you will need to adjust the
value of the maximum affordable home by subtracting the
additional costs.

The Cost of Home Ownership: Initial
Fees
There are different types or groups of fees that you may
encounter as additional costs when buying a home.
• Appraisal fees - When borrowing money the lender (e.g.
bank) must determine the value of the property. A
certified appraiser will determine the value of the
property.
• Inspection costs - An inspection of the property is not
absolutely necessary, but it will let you know if any
repairs are required or if the house has any structural
problems.

The Cost of Home Ownership: Initial
Fees
• Mortgage Application Fee - The bank may charge a fee
for processing a mortgage application.
• Insurance costs for high ratio mortgages - You must
pay additional insurance costs if you have a high ratio
mortgage. A high ratio mortgage is a house loan where
less than 25% of the original cost of the home is paid with
the down payment. The cost for this insurance is usually
about 1.25% -3% of the total mortgage, depending upon
the amount of your down payment.

The Initial Cost of Home Ownership:
Legal Fees
Lawyer's Disbursements And Fees
• Legal fees - When you purchase a home, it is advisable
to retain a lawyer or notary to act on your behalf. They
will look after all legal transactions, but they must be paid
for their services.
• Land transfer tax - Some provinces levy a tax on any
property that changes hands. As the buyer, you are
responsible for this cost. It is usually a small percentage
of the purchase price, but it can add up to a large amount
depending on the value of the property.

Legal Fees
• Property survey - This will supply information on how
buildings and fences are situated on the property. If there
are any easements on your property, it is a good idea to
know about this before making the purchase.
• Easements are rights of way by the town, city, or utility
company to access your land for specific purposes such
as digging up telephone wires. An encroachment is an
intrusion onto your land by a neighbour's structure, or
possibly an encroachment on your neighbour's land by
something on your property. In either case, you would
certainly want to know about this before purchasing this
property. You may be able to obtain a survey certificate
from the seller. If you require a new survey certificate you
will have to purchase one from the municipality.

Adjustments
Adjustments
• Interest adjustments - The buyer is responsible for any
interest payable between the closing date (the date of
possession) and the first mortgage payment.
• Prepaid property taxes and utilities - You will have to
reimburse the seller for any utilities or taxes paid for the
period of time you own the home.
• Home insurance - As soon as you purchase a home, it
is wise to purchase home insurance. If you plan to carry a
mortgage then the bank that you borrow the money from
will require you to have home insurance. In the case of a
home with a mortgage, insurance is not optional.

Moving And Set Up Fees
• Moving expenses - You may need to pay professional
movers, rent a truck, or hire helpers when you move.
Driving expenses, meals, and motel bills may also be
part of the cost of moving.
• Service charges - Hookup fees for telephone, TV, and
utilities will likely be added to your first bills.
• Immediate repairs - Some of these may be necessary
prior to your moving in. You may want to negotiate the
cost of these repairs with the seller.

• Appliances - You may need to buy appliances such as a
fridge, stove, washer, dryer, and/or dishwasher when you
move in.
• Decorating cost - You may want to do some painting,
wallpapering, carpeting, etc, before you move in.
• Sales tax - GST may be charged when buying a new
home in Manitoba.

Considering the Additional Costs of
Ownership
Example:
• Mr. Johnson's family has decided to buy a larger home for work purposes, and the date of possession is April 1. The price of
the home is $285 000 and he has $50 000 as a down payment. The following additional costs are related to the purchase of
the home:

The Johnson's decide to have an inspection done on the home to ensure that there are not any issues with the structure of the
building. The inspection fee is $400.00. The bank charges $150.00 for the mortgage application fee. The new home is
appraised, and the fee is $250. Since this is considered a high ratio mortgage (a house loan where less than 25% of the
original cost of the home is paid with the down payment), the Johnson's will have to pay an additional 0.5% of the total
mortgage. The bank requires a land survey which costs $550. The legal fees are $575. The land transfer tax is 1/4% of the
amount of the mortgage. The interest adjustment that the Johnson's must pay is $498.03. The Johnson's will buy
homeowner's insurance on the new home for $859, but will receive a refund of $500 from the previous home insurance policy.
The previous owner had paid the property taxes of $4,350 for the period January 1 to December 31, and the Johnson's will
have to pay for their share of the taxes. The movers charged $1,200 for moving his furniture and other belongings, and the
company he works for paid half of this. The family decided to install new carpets into part of the house at a cost of $2,400 plus
PST and GST. The cost of hooking up telephone, TV and Internet are $95.

• Examine the Johnson family's situation and determine the additional costs of moving for Mr. Johnson and his family.

Practice
ADDITIONAL EXPENSES
Worksheet #5

Renting vs Buying a Home

• In this lesson you will explore the relative
advantages and disadvantages and compare the
costs of renting or buying a home. Some
financial advisors will say that it is better to buy
than rent. While this is usually true in the long
term, there may be reasons that people will
choose to rent rather than buy a home.

Practice
BUYING VS RENTING
Worksheet #6

Unit 1 Home Finance

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Unit 1 Home Finance