It's Tip Tuesday folks! As we have mentioned before, there are 3 ways property taxes can be paid: monthly to the City directly, as part of your mortgage payment (with your lender storing the tax payment and paying the City in full at the typically June deadline), or annually for the entire calendar year at the typically June 30 deadline. Sometimes your lender forces you to pay them as part of your mortgage, especially if you are a first time buyer and/or have a CMHC insured mortgage loan. When you pay as part of your mortgage, your lender may, especially if you have a CMHC insured Mortgage, require a tax holdback. If the lender has concerns that you will pay the taxes on time or you take possession at a time of the year where there won't be enough monies stored to pay the annual taxes, they may require this.
You move into your new home in March. Since the taxes are due in June when you pay them annually, which the lender does for you despite collecting as part of your payment, you will have not made enough mortgage payments including the tax portion for the bank to have accumulated enough to pay the taxes. They will either make you pay all the taxes yourself at once to your lawyer or they will increase your payments to make up the 9 months of no payment or they will have a tax 'holdback.' The 'holdback' means that if 100000 was supposed to be advanced in the mortgage, the bank will only advance 100000, less your share of the taxes for the rest of the year that they need and put it in your tax account. This means you'd have to bring in the rest of this money out of your own pocket to make up this amount that you'd otherwise be lending from the bank. Make sure to go over this situation with your mortgage broker so you can budget accordingly. As always, I recommend paying the taxes directly to the City.
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