Closing day. The day is arriving, and fast! It’s the final day when you transition from being the legal owner of your current home. It’s exciting, liberating even, but it’s also nerve-racking. Could things go wrong? What do you need to do? And what should you expect?
To help you handle the approach to closing day, we’ve created this handy “Real Estate Closing” cheat sheet. Consider it your walk-through for the final transfer of your current home to the new buyer.
A Few Weeks After the Offer is Finalized
Now that you have a firm offer and some solid dates, it’s time to start the process of disentangling yourself from the property.
If you haven’t already done so, call your mortgage lender and explain what is happening. They will walk you through the process of discharging the mortgage; this is just a fancy way of saying terminate the mortgage.
Don’t be surprised if there are fees associated with this procedure. (See Calculating Mortgage Penalties)
Another call to make is to your home insurance provider. Let them know your move-out day and schedule a termination of coverage for the day after (always add a day, just in case).
Also, start contacting utility companies to notify them of your move and the day services are no longer your responsibility at the current address.
Finally, don’t be surprised to get a call from your Realtor asking when the buyer can do a walk-through of the home. While it depends on the agreement, most buyers ask for at least two walk-throughs prior to closing.
Most buyers will schedule one walk-through shortly after the offer is finalized and the other just before the closing date. The first enables the buyer to take measurements of rooms and note items that need to be addressed (from their perspective). The second is to allow buyers the ability to see that the property is still in good condition and that no red-flags exist.
The Week Before the Closing Date
A week prior to the closing date, you should expect to have an appointment with your real estate lawyer. This meeting is the final legal step to make this transaction official.
During this meeting, you will be required to hand over keys and fobs, or make arrangements to hand these items over on the close date to your lawyer or Realtor; you will be required to sign documentation from the bank releasing you from the mortgage, as well as documentation from your lawyer that removes you from the title of the home.
Your lawyer may ask you for paperwork, such as mortgage documentation, a land survey or documents from the city regarding past renovations and permits (it depends on what the buyer asked for and what you agreed to in the final offer). Other documentation required may include:
- Home appraisal
- Inspection reports
- Home purchase contract
- At least two pieces of photo or legal identification
At this meeting, your lawyer or legal representative will walk through the financial details of this transaction. This includes the total funds from the buyer, the total costs for paying off the mortgage, legal and administrative costs as well as fees or charges that must be paid to the buyer (for utility use or property tax updates).
After this meeting, you will either walk out with a copy of each of these documents or receive a copy within a few days. Store all the paperwork in a safe place. Now that Canadians must report the sale of all properties, you may require this documentation to confirm that you sold your primary residence and, as a result, do not owe capital gains tax.
It’s at this time you will also need to talk to your Realtor to finalize the transfer of keys and fobs.
This is also the time you should also be confirming your movers (booked prior to this date) and any other last minute details attached to vacating the property.
The Day Before the Closing Date
Quite often this is the day a buyer asks for their final walk-through. Their aim is to walk-through and look for any red flags. Usually, that means a buyer will want to confirm the following have been completed:
- You have left any items stipulated in the contract (such as appliances)
- You have removed all trash from the premises (or you’re in the process of doing this)
- You have left the property in “broom swept clean” condition (or you’re in the process of doing this)
- You’ve made any last-minute repairs uncovered during the home inspection or to damage that transpired between the final offer date and the closing date.
- You haven’t accidentally broken any doors or windows while moving out
- You’ve left the mechanical systems (HVAC, hot water tank) and appliances in working condition
- Your personal belongings have been moved out (or you’re in the process of doing this).
While many sellers will schedule their final move a few days or a few weeks before the close day, it’s good to know that you have until the closing day — in most parts of Canada — and the day before close day — in B.C. to officially vacate the property.
On moving day, all your personal belongings must be removed by a specified deadline. While this deadline differs from jurisdiction to jurisdiction, most Ontario sellers should leave their former home by no later than 2 or 3 p.m. (in some situations, it’s as early as 11 a.m. or 12 p.m.). In B.C. the standard close time is 6 p.m. What this means is that the buyer cannot legally enter or occupy the property until this time — although this detail can be waived if you come to an agreement with the buyer. Just be careful, as you are still legally and financially responsible for the home until the transfer date and time.
Just in case: Calculating Mortgage Penalties
Don’t be surprised if there are fees and penalties associated with breaking or closing your mortgage.
When you pay off your mortgage before the agreed-upon term ends or if you pay down your principal beyond the prepayment limits, your bank will charge you a penalty.
If you have a fixed-rate mortgage and you are closing it before the term ends, you will be required to pay a penalty as well as discharge fees (legal and admin fees that range from $100 to $1,000, but typically fall between $200 and $400). In this case, it’s the penalty that will surprise you. According to laws and regulations that govern mortgages, banks can charge you a penalty based on a complicated and proprietary formula known as an IRD. The IRD — or interest rate differential — is a compensation charged by your mortgage lender when the mortgage contract is broken. A mortgage contract is broken when you pay off your mortgage prior to the maturity date or pay the mortgage principal down beyond the number of your prepayment privileges.
An IRD formula is based on:
- The amount you are pre-paying; and,
- An interest rate that equals the difference between your original mortgage interest rate and the interest rate that the lender can charge today if it were to re-lend these funds for the remaining term of your discharged mortgage.
Since IRD costs can be quite expensive, it’s a good idea to get an estimate of what you owe prior to selling and breaking your mortgage. You can use the IRD calculator on the Mortgage Professionals of Canada site.
If you have a variable-rate mortgage, expect the bank to charge you a penalty that’s the equivalent of three-months interest on your mortgage.
If you are facing a large penalty and you plan on moving into a new home that also has a mortgage, it’s a good idea to talk to your mortgage lender. While not all mortgages are portable — they can be transferred from one property to the next — it’s possible your current mortgage is portable. If not, your lender may be able to offer you additional options to minimize fees and penalties.
Also, consider talking to an independent mortgage broker during this time. Quite often, current lenders aren’t as generous or flexible if they think you may be stuck. An independent mortgage broker, however, doesn’t work with just one lender. This lending professional may know of other ways to minimize costs when breaking a mortgage.