Understanding who pays seller-financed mortgage costs in an Ontario real estate deal.

Whose Bill Is It? Understanding Costs in Seller-Financed Real Estate Deals in Ontario

If you’re navigating a seller-financed deal in Ontario, you’ll notice the closing table isn’t your typical “buyer pays this, seller pays that” run-through. There are twists, especially around mortgage-related costs. Let me break it down in plain terms, so you know who’s likely picking up which tab when the deal hinges on a seller providing financing.

What seller financing actually means

First, a quick refresher. In a seller-financed transaction, the seller acts as the lender. Instead of a traditional bank loan, the buyer signs a promissory note and a mortgage with the seller. The buyer gets the property, the seller gets a security interest in the property, and the terms (interest rate, payment schedule, and what happens if you miss a payment) live in the mortgage agreement.

This can be a smart path for buyers who hit a financing snag or for sellers who want to attract more buyers. It also means the closing process has its own flavor. Some costs are squarely in the buyer’s court, some in the seller’s, and some are negotiable based on the deal you hammer out.

What costs are typically involved at closing?

Ontario closing costs can feel like a long shopping list. In a seller-financed deal, the main categories you’ll encounter include:

• Land transfer tax (buyer): This is a standard cost in Ontario whenever property changes hands. Toronto adds a municipal land transfer tax on top of the provincial tax. It’s almost always the buyer’s responsibility, regardless of financing structure.

• Deed preparation and related title work (seller, usually): The seller often handles the deed preparation and initial title transfer duties. It’s part of delivering clear title to the buyer and completing the conveyance.

• Mortgage-related costs tied to the seller’s financing (buyer): This is where the unique twist comes in. When the seller funds the loan, the buyer typically handles costs tied to that mortgage. Think about registration of the mortgage, any required legal work to document the seller-financed loan, and related title searches or searches of lien status. In practice, the buyer takes on these mortgage-specific costs because they are the party taking the loan and securing their use of the property through that mortgage agreement.

• Legal fees and disbursements (often buyer’s responsibility): In Ontario, the buyer usually covers the majority of legal fees at closing, including the work done by the lawyer who handles the purchase, the mortgage (if any), title search, and related registrations. Some deals see a negotiated split, but the norm leans toward buyer responsibility.

• Title insurance and lender’s title insurance (buyer): If the lender requires title insurance, the buyer typically pays for it. In a seller-financed deal, this is usually the buyer’s expense as part of securing the mortgage.

• Adjustments and prepaid items (buyer and seller may share): Utilities, taxes, and condo fees that are paid in advance or collected in arrears are adjusted at closing. Depending on the timing, both sides might contribute to the prorations.

• Real estate commissions (seller): If the listing was with a real estate professional, the seller usually pays commissions. This is often handled outside the mortgage conversation, but it’s part of the overall closing picture.

Why the buyer usually pays the mortgage-related costs in seller-financed deals

Here’s the key point to remember: the buyer is the one taking on the mortgage. Since they’re the borrower, they’re responsible for registration and documentary work connected to that loan. The mortgage creates a security interest in the property, so the legal documentation must be precisely recorded in the land registry system. That process — registering the mortgage, recording the promissory note, and ensuring the title reflects the seller as the mortgagee or the seller’s lien status — naturally sits on the buyer’s side of the ledger.

To make it concrete, consider a simple scenario. A buyer agrees to purchase with seller financing. The buyer signs a mortgage with the seller for a portion of the purchase price. The buyer then pays for:

• Mortgage registration fees (to record the loan against the property)

• Legal work to document the seller-financed mortgage

• Any title searches or title-related costs tied to the mortgage

• Title insurance (if required to protect the buyer or the lender)

Meanwhile, the seller, who is financing the loan, covers things tied to delivering the property and preparing the deed, such as deed preparation. The land transfer tax sits with the buyer, as noted earlier, and the seller typically doesn’t shoulder that tax just because they acted as the lender.

A practical example to anchor the idea

Let’s put some numbers to it, in a clean, straightforward way (all numbers are illustrative). Imagine the property price is $500,000.

• Land transfer tax (buyer): Let’s assume Ontario’s rates apply. The buyer pays this at closing.

• Deed preparation (seller): The seller’s team handles this cost as part of delivering clean title.

• Seller-financed mortgage costs (buyer): The buyer pays for registering the mortgage, any legal drafting needed to document the seller’s financing terms, and any title searches tied to the loan.

• Other closing costs (buyer): Legal fees for the purchaser, title insurance, and adjustments for taxes or utilities are commonly the buyer’s responsibility.

The result is a clear pattern: the buyer takes on the mortgage-related costs simply because the mortgage is the vehicle securing the deal for the seller. The seller’s role as lender doesn’t automatically shift mortgage-related costs back onto the seller.

Negotiation angles that clients often consider

Deals differ, and savvy buyers and sellers use negotiation to shape who pays what. Here are a few practical levers you’ll see in Ontario negotiations:

• Split the mortgage costs: In some agreements, the buyer and seller agree to share the costs of privacy-compliant mortgage documentation or title searches. If the buyer has a strong case to request a favorable interest rate or a longer amortization, they might concede a small share of the mortgage costs to secure that term.

• Cap the seller’s upfront costs: If the seller is wary about upfront cash allocations, they might agree to cover some deed-related expenses or contribute toward certain closing costs as part of the overall package.

• Clarify which taxes are included: Occasionally, a deal may address whether any portion of land transfer tax can be covered by the seller as a credit at closing if the seller is keen to close quickly. It’s not the typical path, but it can come up in negotiations.

• Use a knowledgeable lawyer to draft the agreement: A tight, clear agreement guards both sides against confusion. When the mortgage is seller-financed, the contract should precisely spell out who pays for what, how late payments are handled, and what happens if the buyer defaults.

Practical tips for students and new buyers

• Don’t skip the lawyer chat: Real estate transactions, especially with seller financing, hinge on precise documentation. A seasoned real estate lawyer in Ontario will flag potential issues and keep the closing on track.

• Keep a close eye on the numbers: Land transfer tax, legal fees, and mortgage-related costs add up. Create a simple closing-cost worksheet to track who pays what before you walk into the closing.

• Ask questions early: If you’re the buyer, ask about who covers mortgage-related costs and whether any of those costs can be negotiated. If you’re the seller, prepare to explain why you’re asking for or offering certain allocations in the deal.

• Understand the terms of the seller loan: The interest rate, payment schedule, amortization, and default remedies will influence how costs appear at closing. A clear, well-drafted mortgage document helps prevent surprises later.

A small glossary you’ll find handy

• Deed preparation: The work involved in creating and recording the deed that transfers ownership.

• Land transfer tax: A tax levied by Ontario (and Toronto for city residents) on the transfer of real estate. Buyer typically pays.

• Mortgage registration: The process of recording the mortgage against the property in the land registry to perfect the lender’s security interest.

• Title search: A check on the property’s title to confirm ownership and reveal any liens or encumbrances.

• Mortgagee vs. mortgagor: The seller may be the mortgagee (the lender) in a seller-financed deal, while the buyer is the mortgagor (the borrower).

Bringing it all home

In Ontario seller-financed deals, the buyer handles the costs tied to mortgages created by the seller’s financing. The deed and title transfer costs tend to sit with the seller, land transfer tax falls on the buyer, and the broader closing costs follow the usual pattern with a few nuances tied to the financing structure.

If you’re exploring seller financing, think of it like a dance: each step has a cost, and both partners want the steps to flow smoothly. Ask questions, read the documents carefully, and lean on your real estate professional or lawyer to ensure the music stays in rhythm.

Final note: while this overview helps frame who pays what, every deal is unique. The exact allocation of costs can shift based on negotiations, the specific terms of the seller-financed loan, and local practices. Understanding the general rule—buyers typically handle mortgage-related costs in seller-financed Ontario deals—gives you a solid compass as you navigate through closing day. And who knows? With clear communication and careful planning, you’ll be ready to close with confidence and clarity.