6 Easy Steps to Buy Your First Home

WANT TO KNOW MORE? CALL ME TODAY!

Mortgage Architects	Steven Porter CRMS ABR SRES Broker Lic. No. M15001919 Mortgage Agent P 905-878-7213 C 905.875.2582 Brokerage #12728 14 Martin Street, Milton, ON, L9T 2P9
	5675 Whittle Road, Mississauga, ON, L4Z 3P8 Privacy Policy

What you can expect for closing costs in a typical, residential real estate purchase.

It is important to be aware of all the costs involved in buying a home. It is prudent for a home buyer to know these costs before you go house hunting. Knowing what additional “closing costs” are, over and above the down payment will help you plan for a smooth purchase and help you avoid unpleasant surprises. Most lenders recommend you should allow at least 1.5%  to 2% of the purchase to be on the safe side.
 
The list below is a good guideline of closings costs that you might incur but always verify these for your particular situation.

Legal Fee and Disbursements

A lawyer will charge a fee for their professional services involved in drafting the title deed, preparing the mortgage, and conducting the various searches. The disbursements, on the other hand, are out-of-pocket expenses incurred, such as registrations, searches, supplies, etc., plus H.S.T. The actual fee that the lawyer will charge will depend entirely upon the deal between you and your lawyer. Be sure to ascertain exactly what this will amount to in a worst-case situation. Typical legal fees for a purchase with a mortgage  range between $1,000 to $1,500 including disbursements. We recommend you call one or two lawyers and obtain a quote directly from them including both their fee and estimates of disbursements.

Ontario Land Transfer Tax (LTT)

The Province of Ontario levees land transfer tax that is charged on closing when the property is transferred to your name. The amount varies on the price of the home, whether or not you are a first time home buyer and which city you live in Ontario, Canada.

Mortgage Insurance

Budget for insurance on your new home. Insurance costs may include Mortgage Default insurance, homeowners insurance, mortgage life and disability insurance and title insurance.

Property Tax and Prepaid Utilities Adjustments

At the time of a sale, the lawyer for the buyer will confirm that property taxes are paid up to date. If they are, a Tax Certificate is issued, from which any adjustments are made - usually requiring the buyer to compensate the seller for any prepaid taxes. If they are not up to date, the municipality requires that the seller pay them off from the proceeds of the sale. If the current owner has prepaid property taxes or other utilities for the year, they will be credited the prepaid portion on closing by the purchaser. Your lawyer will confirm this for you.

Property Appraisal

If your lender requires an appraisal report to be completed, it will be done before advancing any mortgage funds. Lenders want to be assured that the property is worth what you are either paying for it, or valuing it for. The cost for an appraisal normally ranges between $250 and $450 depending upon the property, location and type of appraisal.

Home Inspection

A home inspection report is commissioned by the purchaser to evaluate the physical condition of a property and it's mechanical components prior to the "firming up" of a Real Estate transaction. The scope and detail may vary, but most reports indicate specific issues and cost to repair. Depending on the size and location of the property, a home inspection is around $500.

Interest Adjustment (IA)

Depending on what day of the month you arrange to make your mortgage payments and when your transaction closes, your lender may charge you interest on closing up to the first payment date. This is called the Interest Adjustment Date (IAD). Your mortgage agent will calculate this for you. Remember, that all mortgages are paid in arrears so if your possession date is June 1st, and you choose to pay monthly, then your first payment will be July 1st.

Always consult a professional in your initial planning and before committing yourself to one of the largest purchase transactions you'll make. I'm always available to answer your questions. - Steven Porter, Mortgage Agent - Mortgage Architects steven.poretr@mtgarc.ca or 1-905-875-2582

10 Biggest Mistakes Novice Investors Make

10 Biggest Mistakes Novice Investors Make

Real estate has become the tech stock of the 2000s, the darling investment that everyone seems to think will be his ticket to easy wealth. And why shouldn't investors be snapping up cute little cottages? After all, mortgage rates are low and the housing market is hot. How hard could it be? Slap on a new coat of paint, put some flowers in pots by the front door, put a "For Rent" sign in the yard, and start counting the cash.

 

In 2004, the National Association of Realtors reported that nearly a fourth of all the houses sold in went to investors; about 80 percent of investment properties were existing single family houses. If you're looking for rental income -- and most investors are, according to the NAR -- buying a single-family house may be the first mistake. All it takes is for a property to sit vacant for a couple of months -- or a tenant to run out on the lease -- to put a new real estate investor in a financial bind. Far better to buy multifamily units, such as duplexes. That way, you can live on one side and have the rent from the other side pay your mortgage. Or, rent out both sides and give yourself some breathing room in case one tenant moves in the middle of the night without paying his rent. A first-time investor should look at (multifamily units of up to) four units to limit their risk.

If you're still convinced that investing in rental real estate is the road to riches, at least go into the proposition with your eyes, as well as your wallet, open. Here are 10 common mistakes made by new real estate investors:

1. Falling in love with the property. Stop thinking like a homeowner and start thinking like a business owner.  Get emotional about the deal, not the house. 
2. Not performing your due diligence.This is more than just an inspection of the property, although that's essential. (Can you say, "deferred maintenance costs"?) It's also a thorough investigation of your area's current rental market. What are the vacancy rates and average rents for comparable units? What's the average age of the rental housing stock? How is the neighbourhood zoned? What are the government regulations about rental properties? Has the Municipality approved new rental complexes nearby?
3. Forgetting the rule of home improvements.It will always take three times the money and twice as long as you estimate to get a unit ready to rent. Or is that twice the money and three times longer? Either way, you need to build that extra cost into your expenses. 
4. Thinking you'll get those low mortgage rates you see on the Internet. Those are for owner-occupied homes. Investment property is considered a riskier loan and you'll pay more in interest rates. The credit qualifications also will be higher. You don't need perfect credit, but if your credit is in the dumps, you won't get the loan. 
5. Not pre-screening tenants. New landlords can get very excited about prospective tenants who show up, take one look at the place, hand them a cash deposit, and want to move in that weekend. Don't do it. When selecting renters make them fill out an application, and check their credit, employment and rental history before you take a dime from them. It's a much more expensive -- and potentially nasty -- headache to evict a bad tenant than to have a unit sit vacant for a couple of months. 
6. Breaking your own rules. Landlords establish policies for good reasons. When they start ignoring those policies, they're headed for trouble. No pets means no pets. Don't ever let someone move in without a security deposit, and don't ignore collecting late fees. (where permitted by law) 
7. Investing long-distance. Unless your rental property is in a spot you love to visit regularly, such as a lake or the beach, keep your rentals very close to home. Otherwise, you'll eat up your profits by driving back and forth to manage the property or by paying someone to make repairs, etc. for you. 
8. Paying too much for the property. If you're embarrassed to make a low-ball offer to a seller, don't invest in real estate.. Rental property owners generally work off a multiple of 100. That means that if you pay $100,000 for a unit, you need to collect $1,000 a month in rent to pay all the bills and have a decent profit margin. If you've done your homework, you'll know what your rental market will bear. 
9. Not studying the competition. Why does the guy across the street fill his units the same day someone moves out and yours sits vacant for months? He might not be very picky about whom he rents to, but he also might have lower prices, have washers and dryers in his units, pay for lawn maintenance and trash pick-up, or have his building on a wireless network. 
10. Being under insured. Insurance on rental property goes beyond insuring the building against fire or a flood. You need to look at your own coverage for liability. If there's a loose railing and a tenant's child falls off a balcony or there is a burglary and a tenant says it's because you wouldn't install security alarms, you're likely to get sued. 

 Real estate investing can be lucrative by following successful strategies and tactics of other successful investors. These 10 tips are by no means exhaustive but are a good starting point for a novice investor.

Posted by Steven Porter, Real Estate Broker & Mortgage Advisor.
 

First-Time Home Buyer? You Need to Understand These Lending Definitions

Purchasing a home is a life-changing investment. A big decision like buying a first home, combined with confusion about the process, can lead to a detrimental financial mistake. Take the time to understand some of the key lending industry jargon.

Mortgage Loan Underwriting: The underwriting process is used by lenders to determine the amount of risk a mortgage would be. Before approving a loan, an underwriter will evaluate your credit score and history, credit score of a spouse or partner in the purchase, bank accounts, employment history, current income, and current and projected debts and assets.

Loan Points: A point is equal to one percent of the amount borrowed, or principal, of your mortgage. Lenders charge points in both fixed-rate and variable-rate mortgages in order to increase the returns to the lender on the mortgage and to cover loan closing costs. Points are usually collected at closing and may be paid by the borrower, lender or or may be split between them. There are two types:

• Discount Points are paid to reduce the interest rate on a loan and are normally paid at closing.
• Origination Points are paid at closing. On a conventional loan, a loan that is not insured against mortgage default, the loan origination fee is the number of points a borrower pays to typically to a mortgage broker for arranging a mortgage.

Assumable mortgage: A home mortgage that allows the buyer to take over the seller’s mortgage. The buyer makes mortgage payments and complies with other terms of the original seller’s existing loan.

Balloon mortgage:A mortgage that is not fully paid off over the term of the loan, leaving a balance at the end. The borrower must either pay off the remaining mortgage or refinance the loan.

PITI: Abbreviation for the major expenses that make up a mortgage payment: principal, interest, property taxes and homeowners’ insurance.

Prepayment penalty: A charge imposed on a borrower who pays off a mortgage loan before its due date. Lenders impose prepayment penalties to encourage borrowers to hold a debt, and keep paying interest on it for the whole term of the mortgage.

Title report: The written examination of a real estate title search, including a property description, names of titleholders and how the title is held (joint tenancy, for example), mortgages and other charges, and liens. A title report is needed before a lender will agree to finance the purchase of the property. The report is typically prepared by a Lawyer.

Contingency: A provision in a contract stating which terms of the contract will be altered or voided if a specific event occurs before the closing of the property. For example, a contingency in your home purchase contract might state that, if the buyer does not approve the inspection report of the physical condition of the property, the buyer does not have to complete the purchase, or an included contingency that the buyer be allowed a certain number of days to obtain his financing or to sell his house.

Mortgage Default insurance: Insurance that reimburses a mortgage lender if the buyer (borrower) defaults on the loan and the foreclosure sale price is less than the amount owed to the lender (the mortgage plus the costs of the sale). A home buyer who makes less than a 20 percent down payment will most likely have to purchase mortgage default insurance if dealing with a bank or first tier lender.

Closing costs: Closing costs are fees, charged by your lawyer, lenders, government and third parties, related to the purchase of the home. An estimated one and a half to five percent of the purchase price of the home. You will usually pay closing costs at the time you close on a mortgage. The cost can include a loan origination fee, processing fees, discount points, appraisal fee, title insurance and legal fees, Land Transfer Tax, and HST/GST

Deposit (Earnest) money: This is in the form of a deposit and tells the seller that you’re committed to your offer. Once the seller accepts your offer, the deposit money will go towards your down payment and closing costs.

Take this glossary with you to your lender meeting and you will feel much more comfortable throughout the home buying process.

 How to Secure the Best Financing Rates and Terms When Buying a Home. Best Financing, A Three-Point Plan

Recent changes to the RRSP Home Buyers Plan

With the federal government's Home Buyers' Plan, you can use up to $25,000 of your RRSP savings ($50,000 for a couple) to help finance your down payment on a home.

To qualify, the RRSP funds you're using must be on deposit for at least 90 days. You must also provide a signed agreement to buy or build a qualifying home.

The best part is the withdrawal is not taxable as long as you repay it within a 15-year period. The payback amount is at least one-fifteenth a year of the amount you withdrew from your RRSP. So make sure you set up an automatic monthly, bi-weekly or even weekly contribution to your RRSP, to ensure you do not miss any repayments!

Advantages

Using your RRSP's as a downpayment may be a great option as you have the ability to draw from some of your existing resources and it might possibly allow you to accumulate the 20% down payment needed to avoid having to pay default insurance premiums. Even if you already have enough money for your down payment, it may make sense to access your RRSP savings through the Home Buyers' Plan.

For example, if you have already saved $25,000 for a down payment and assuming you still had enough "contribution room" in your RRSP for a contribution of that amount, you could move your savings into an RRSP at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers' Plan. The advantage? Your $25,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home. But remember, you will have to pay that amount back to your RRSP over the next 15 years.

Considerations

It's very important to your overall plan that both the pros and cons of this strategy be reviewed. There are a number of questions you should be asking yourself about this strategy:

• Will you repay the requirement amount each year?
•  Is it the right time to cash out your RRSP (i.e., this depends on the investments and rate of return you are getting on your current investment)? 
• Is it worth forgoing the future tax sheltered growth potential of your RRSP in favour of reducing the mortgage amount (including default insurance premiums, total interest costs, etc.)

6 Ways to Avoid the Tenant From Hell

 While there’s tremendous success to be had in the world of investment properties, the unsightly truth is that one bad tenant can cause a monumental setback.
It’s hard enough to keep up with wear and tear on your investment property without having to deal with disgruntled residents causing willful and severe destruction to a home. From “Sharpie parties” — where tenants invite friends over to vandalize the home with markers — to “indoor swimming pools,” where renters flood the premises and take a dip, there’s no shortage to the devastation that tenants can create.

Of course it’s not always so dramatic, but the problem of trouble tenants is quite widespread. In a poll conducted by Vancouver-based newspaper The Province, 71 percent of landlords say that they’ve had problems evicting a renter despite justifiable grounds. Late rent payments, broken appliances, and disputes over damage deposits are some of the most common issues that landlords face. The costs involved with repairing damage left by a less-than-upstanding renter, not to mention the time and money that it takes to pursue an eviction, can be enough to strike terror into the heart of even the most seasoned property owner.

The good news is that an ounce of prevention is still worth a pound of cure. While you can’t always foresee issues with renters, there are steps that you can take to drastically reduce the chances of problem tenants gaining access to your rental in the first place.

Having an airtight tenant screening process is one of the best ways that you can protect yourself and your properties from potential devastation. Let’s look at a few tasks that can help you build a metaphoric hedge around your property that helps prevent unsavory tenants from getting in.

1. Require a Tenant Application

The right questions can help you to sift through unqualified tenants at the start. Draft an application form and have it ready for every prospective tenant. Ask each adult to provide basic information, such as name, date of birth, contact information, emergency contacts, and request similar information about any children who live with them.

In addition to asking the date they hope to move in, ask these questions:

• Do you have any pets?
• Do you smoke?
• Have you ever been evicted?
• Have you ever been convicted of a felony?

Be sure to request references, employment information, and a way to contact their previous landlord. Consider asking an attorney look over your form, to ensure both that you’ve covered your bases and that you haven’t asked any questions that could be considered discriminatory or cause legal issues.

2. Start Interviewing

The interview is vital. This is your chance to screen prospective tenants and find out whether or not they’re an ideal match for your property. Good questions to ask include:

• Is your income the same every month, or does it vary?
• Why are you moving?
• Describe your perfect rental space.
• What’s your favorite or least favorite thing about the place you’re living in now?

The interview should give you a good idea about whether or not the prospective tenant will be able to afford the rent and abide by the terms of your rental. This About.Money article, “Ten Questions for Prospective Tenants,” provides a fairly comprehensive list well worth considering for the tenant interview process.

3. Conduct Diligent Research

Always follow through with a check of potential tenants’ references, credit, and possible criminal background. Verify important information that the tenant provides, particularly current employment and previous rental history.

When contacting references, ask how long each person has known the prospective tenant and for their opinion on the reliability and character of the tenant. It’s especially important to get in touch with previous landlords, who may be more likely to paint an accurate picture for you. Current landlords might be desperate for a problem tenant to leave and may gloss over the truth in an effort to get the tenant to move faster.

4. Watch for Warning Signs

Look out for red flags that can alert you to a potential problem tenant. If the applicant makes you feel nervous or seems desperate to move in as quickly as possible, that could be a warning sign.

And watch out for candidates who question every aspect of your rental application process, as this may be an indicator of someone who will be unwilling to abide by your rules when renting. Legitimate candidates understand that it’s important for you to conduct credit and background checks, and most will appreciate the care you take in selecting tenants.

Be sure to compare the application and your notes from the interview to what comes up on the background check. Be extremely wary of any discrepancies.

5. Keep It Legal

Of course, as important as it is to have a solid tenant screening process, it’s also important to ensure that your process complies with the law. While you should watch out for warning signs, never screen tenants based on feelings alone. Be careful to use the same qualifying procedure for all applicants, and treat all candidates equally to prevent accusations of discrimination.

You should also use the same process each time you deny someone, regardless of the reason for denial. A simple e-mail highlighting the reason is sufficient. Doing this properly and in writing can help to prevent any accusations of discrimination. As another legal side note: Be sure to check local laws before collecting application fees or a deposit, as this practice may not be legal in all areas.

6. Get It in Writing

Finally, once you have found a tenant for your property, it’s important to make sure you have a rental agreement in place. This document should contain clear guidelines and will help ensure that you and the tenant are both on the same page, preventing problems from arising later on due to miscommunication. The agreement should include the names of all the residents, occupancy limits, and rental terms, including late fees, acceptable payment methods, and charges if a rent check fails to clear.

While many landlords are hesitant to implement a tenant screening procedure because it’s time-consuming, in the end a solid screening procedure can save time and prevent a world of hassle. You’ll be able to weed out problem renters and save yourself from costly evictions and extensive repairs down the road. Finding a tenant that’s a great match for your property is more than worth the time and effort it takes. You’ll thank yourself later, and your wallet will too. 

by BRENTON HAYDEN, REPRINT

When does a mortgage prepayment charge apply?

 

• Renewing your mortgage before the maturity date
• Prepaying more than the amount of your annual prepayment privilege
• Refinancing your mortgage and selecting a new term
• Transferring your mortgage to another lender
• Paying off your mortgage before the maturity date

In all of the above scenarios, the mortgage balance is being prepaid before the maturity date, which may result in a prepayment charge.

How are prepayment charges calculated for a fixed rate closed mortgage?

If you have a fixed rate closed mortgage, your prepayment charge will be the greater of the following:

• three months' interest on the amount you are prepaying. Interest will be calculated at your annual mortgage interest rate, plus any discount you received
• the Interest Rate Differential on the amount you are prepaying

What is interest rate differential (IRD)?

If you prepay your mortgage, you may be charged a prepayment charge. There are different methods for calculating prepayment charges. In some cases, the amount charged is the Interest Rate Differential amount. At CIBC, the Interest Rate Differential amount is the difference between the following two amounts:

• interest over the remaining term of your mortgage, calculated at your current mortgage interest rate, plus any interest rate discount you received.
• interest over the remaining term of your mortgage, calculated at CIBC's current posted interest rate for the comparison mortgage identified in your mortgage documents.

For a full prepayment, the prepayment charge is calculated on the full amount of the prepayment. For a partial prepayment, the prepayment charge is calculated on the amount of the prepayment that is more than your annual prepayment privilege amount.

How are prepayment charges calculated for variable rate closed mortgages?

If you have a variable rate closed mortgage, your prepayment charge will be three months interest on the amount you are prepaying. Interest will be calculated at CIBC Prime Rate.

Examples of prepayment charge calculations

The following illustrates how prepayment charges are calculated. To estimate your prepayment charge, use the CIBC Mortgage Prepayment Charge Calculator.
Example of estimating the prepayment charge for a variable-rate closed mortgage
Martin has a variable rate mortgage. If Martin wanted to pay off the entire principal amount, the prepayment charge would be equal to three months' interest on the entire amount he is prepaying, calculated at the CIBC Prime Rate in effect on the date the mortgage payout statement is prepared.
Martin still owes $60,000.00 on his mortgage. If the mortgage payout statement were prepared today, and if the current CIBC Prime Rate is 5.000%, here is how Martin estimates the prepayment charge to pay off the entire mortgage.

Step 1:

The total amount of the prepayment.

$60,000.00

Step 2:

The CIBC Prime Rate in effect on the date of the mortgage payout statement is prepared (written as a decimal). Thus, 5.000% becomes .050.

0.050

Step 3:

He multiples the total amount of the prepayment by the interest rate. This is equal to an estimate of one year's interest.

$3,000.00

Step 4:

He divides the annual interest cost by twelve to get an estimate of one month's interest.

$250.00

Step 5:

He multiplies one month's interest by three to get an estimate of three months' interest. This is an estimate of the prepayment charge.

$750.00

When Martin pays off his mortgage, he will need to pay an estimated additional amount of $750.00 to pay for the prepayment charge. This is only an estimate. Martin should call CIBC Mortgages or his current lender to find out the exact amount of her prepayment charge.

Example of estimating the prepayment charge for a fixed-rate closed mortgage
Maria has a 5-year fixed-rate closed mortgage. When she arranged the mortgage, she received an interest rate discount of .500%. Her existing annual interest rate on her mortgage is 6.500%.
The principal amount she still owes is $100,000. She has two years (or 24 months) left in the term of this mortgage. However, Maria has just inherited some money and wants to pay off the mortgage.
In Maria's case, the prepayment charge will be the higher of the following two amounts:

• three months' interest at her interest rate of 6.500% plus the discount she received of .500%, which is equal to 7.000%; or
• the interest rate differential amount

The following shows an estimated prepayment charge for prepaying the full amount of Maria's mortgage:

Estimate of 3 Months' Interest

Step 1:

The amount Maria wishes to pay off is $100,000.00.

$100,000.00

Step 2:

Maria’s current interest rate plus the discount she received equals 7.000%. Written as a decimal, this becomes 0.070.

0.070

Step 3:

The amount Maria wishes to prepay multiplied by her interest rate plus the discount ($100,000.00 x 0.070) equals the estimated annual interest costs.

$7,000.00

Step 4:

The estimated annual interest costs divided by 12 equals an estimate of one month's interest.

$583.33

Step 5:

1 month’s interest costs multiplied by 3 equals an estimate of 3 months’ interest.

$1,749.99

So, an estimate of 3 months’ interest would be $1,749.99.

Estimate of the Interest Rate Differential Amount

Step 1:

The interest costs over the term of a mortgage with Maria’s current principal balance of $100,000.00, with her monthly payment amount of $693.47, a term of 2 years (which is the remaining term of Maria’s mortgage) and her interest rate plus the discount that she received, which is 7.000%, would be $13,603.92.

$13,603.92

Step 2:

In Maria’s case, we determine that the comparison mortgage is the CIBC 2-year fixed-rate closed mortgage. On the date we prepare the mortgage payout statement, the posted rate for this product is 5.000%.

0.050

Step 3:

The interest costs over the term of a CIBC 2-year fixed-rate closed mortgage, with the same principal amount as Maria's remaining balance of $100,000.00, the same monthly payment amount of $693.47 and our current posted rate of 5.000%, would be $9,567.59.

$9,567.59

Step 4:

The interest costs calculated in Step 3 is subtracted from the interest costs set out in Step 1. This is the interest rate differential amount.

$4,036.33

So, an estimate of the interest differential amount would be $4,036.33.

The Estimated Prepayment Charge

Maria's prepayment charge is the higher of the estimated three months' interest costs of $1,749.99 and the estimated interest rate differential amount of $4,036.33.
So, if Maria's mortgage payout statement was prepared today, an estimate of her prepayment charge would be $4,036.33.
Maria should call CIBC Mortgages or her current lender to find out the exact amount of her prepayment charge. The amount above is only an estimate.
 The timing of your prepayment, changes in the interest rate and changes in your payment amount can have an impact on the IRD calculation. You can use the CIBC Prepayment Charge Calculator to see how these changes affect your prepayment costs.

What additional charges may apply when prepaying a mortgage?

There are sometimes additional charges that may apply when prepaying a mortgage in full before the maturity date:

Cash Back Repayment:
• If you received a cash back amount, when you entered or renewed your mortgage, you may be required to repay the cash back. Below are examples of situations where cash back repayment may be required. When you:
• Prepay the mortgage in full
• Ask us to transfer the mortgage to another lender (a "switch")
• Renew the mortgage with an effective date that is before your current mortgage matures
• Refinance the mortgage
• Transfer title to the property and arrange for the mortgage to be assumed by the new owner
• Port the mortgage

Mortgage Discharge Fee/Assignment Fee
• A discharge fee and/or assignment fee for document preparation and registration when the mortgage is prepaid in full.
• If you ask us to transfer your mortgage to another lender, an assignment fee will apply.

How can prepayment charges be avoided? Call me to find out, Steven Porter -1-888-885-8962

Steven Porter, Mortgage Advisor  CIBC, 1-888-885-8962, steven@stevenporter.ca
www.FreeMortgageInfo.ca

Protect yourself against condo insurance deductible

 There is a lot of confusion out there by buyers and real estate salespeople as to what insurance is required when buying a condominium. The mistake is thinking that the insurance policy for the building will always cover your situation. In most cases, the buyer will still have to pay for part of the damages, even if they have done nothing wrong.

Here's why:

Condominium buildings do have an insurance policy that insures the building and the units. However, it will not cover any improvements to the unit made by the owners or the owners' contents, should damage occur, whether by water leakage, fire or smoke damage. In addition, if someone you invite into your unit gets hurt, they can sue the owner personally for liability. As a result, most condominium buyers purchase a policy that provides coverage for their contents, any upgrades that they do to their unit and liability insurance to protect them if someone gets hurt visiting their unit.

What is confusing to most buyers is that just about every condominium insurance policy has deductibles, which become the owner's responsibility should any damage occur, even if it is not the owner's fault. The deductibles are usually $5,000 but I have seen many policies that have $10,000 deductibles. What this means is that let's say you leave the bathtub overflowing and water damages the unit below you. You are responsible to pay the deductible, and the condominium will pay for any damage above the deductible. This will also be the case if you are responsible for the HVAC equipment in your unit and any malfunction causes damages to the building or to other units.

Let's say the pipes in the wall burst, your unit was damaged and you did nothing wrong. Although the pipes may be the responsibility of the condominium corporation, you will still have to pay the deductible before the condominium pays anything extra to repair the damages. The only way to fight this is if you could prove that the condominium corporation was negligent in conducting repairs and should have known that the damage could occur. In my experience, you will pay more in legal fees to fight this than the deductible, so it is just preferable to have the proper insurance instead.

In every condominium status certificate, there is a summary given of the insurance policy for the building, including any deductibles. One way to protect yourself is to send this certificate to your own insurance company and tell them that you wish to buy extra coverage for the deductibles noted on the policy.

A better idea, in my opinion, is to use the same insurance company that your building is using for your own insurance package. This company likely understands the deductibles better than anyone and will make sure that your package covers any gap that may exist in the building insurance policy.

If you are buying a condominium as an investment, you still need to make sure that you have this type of insurance protection. Most tenants purchase insurance for their belongings and to cover liability. If you want the tenant to also pay for insurance for the deductibles, you need to say so in your lease agreement and make sure that the tenant provides proof that they have obtained all required insurance coverage before you give them the keys to the unit.

When you understand the insurance you need before you move into a condominium unit, you will be prepared should anything occur later.

By Mark Weisleder, Toronto real estate lawyer. mark@markweisleder.com