City Taxes
February 12, 2010 2:25 pm Book, First Time Home BuyerYou know the old line, “There are only 3 things in this world that you can count on: birth, death and taxes”.
If you are purchasing your first home then it is likely the first time you will pay City Taxes. These taxes are separate from the income tax that you probably paid in the past. These taxes are levied by the city that you live in and are used to pay for things like roads, parks, street cleaning and hockey rinks. These taxes are very important to all people who live in the city because if these taxes are not collected from everyone then the city services would grind to a halt.
These taxes an annual assessment based of the value of the property. Once the value of the property has been established (they do this through a complex mathematical system) then the nominal tax rate is applied. This gives you an annual payment that is your part of the total city tax revenue.
These taxes are so important to cities that the province has created a law that if the home owner does not pay these taxes then before they can change possession to another owner – the taxes owing are collected from that revenue – even before the lender. This rule alone makes taxes a very important part of the mortgage process to the lender.
The lender wants to have all homes in its portfolio taxes paid so that if a house goes through the foreclosure process that they will get the full sum owed to them as first payable on the Title.
The lender will ensure that taxes are paid by one of two ways:
- They pay them on your behalf. The Lender takes 1/12 of the annual tax amount and sets that as the payment. This payment is added to your monthly mortgage payment.
- You pay them yourself monthly via the Tax Installment Payment Plan (TIPP) Program. Payments will be automatically taken from your bank account on the 1st of the month.
