Closing Cost (pre-Con) - What else does it contain ?

[Exodus]

whether you are able to put a lump sum downpayment upon assuming tentative occupancy phase is another story. I am not sure if the builder would allow you to put more money (although it everything seems to benefit the builder if you do). Check your contracts carefully

 

[interested]

^^^
I have a clause that says I can pay up fully on occupancy or more down payment...up to me. Was inserted at my request on purchase 5 years ago!! Must have been a good day... I must have been thinking for once.

 

[drewp]

So drewp, if I understand: the prorated share of common operating expenses which would essentially be the predicted condo fees; the anticipated property taxes since the property won't be assessed and will be low, and then the 1 year mortgage rate. So unless one can invest the difference between down payment and purchase price for more after tax than the 1 year mortgage rate, it becomes a costly venture and better to increase the amount of payment at occupancy (realizing you risk all the money if the builder went belly up in between) occupancy and closing.

You would have to check your documents carefully on whether they will allow you to put more money down during your payment periods. Of course putting more of a downpayment will lower the phantom rent because they subtract that from the purchase price. So lets say you paid 500000 for your unit, and put down 100000 in that time. The phantom rent would be based on a 1 year Bank of Canada rate of 400000, plus maintenance fees and property taxes.

 

[interested]

You would have to check your documents carefully on whether they will allow you to put more money down during your payment periods. Of course putting more of a downpayment will lower the phantom rent because they subtract that from the purchase price. So lets say you paid 500000 for your unit, and put down 100000 in that time. The phantom rent would be based on a 1 year Bank of Canada rate of 400000, plus maintenance fees and property taxes.

See my previous post. I can pay more and even the whole amount on occupancy. The risk is I guess if the builder goes bankrupt after occupancy before closing. I doubt that will be the case on the Shangrila but heck, Trump in Chicago's developer went bankrupt but of course they were building before the downpayment structure as we have here existed and it was up about 30 stories in the air when they faltered as I understand. At occupancy, this will be quite complete.

 

[ISYM]

It is your right to pay off in full if you have the available cash.

I personally don't like pre-construction sales of any type whether it is condominium or freehold but some buyers want brand new and I've been fortunate that so far my condo clients can pay the balance due which is what I advise.

I also don't like the term 'phantom rent.' I suspect it was coined by someone who considers all buyers idiots and thought they could divert buyers to their own sale's scheme whatever that might be. It suggests it was rent lurking in the backround, hiding in the bushes and unknown to all yet there is nothing phantom about it as it is disclosed at the time of purchase. Having said that, anyone willing to pay occupancy fees ought to do an analysis of profits - they just might be shocked at the erosion of profit.

See my previous post. I can pay more and even the whole amount on occupancy. The risk is I guess if the builder goes bankrupt after occupancy before closing. I doubt that will be the case on the Shangrila but heck, Trump in Chicago's developer went bankrupt but of course they were building before the downpayment structure as we have here existed and it was up about 30 stories in the air when they faltered as I understand. At occupancy, this will be quite complete.

 

[Xenosblitz]

Another amount you get from your builder is interest on your deposit on the condo.

Does anybody know how this is calculated, and where the inputs of the calculation can be found? I find it to be a very mysterious number since its a one-liner in the statement of adjustments.

Its one of the items I for one is least knowledgeable on, since it seems like its a black hole. It'll help offset some closing costs. It will be nice to know how much to expect when closing a pre-con.

Thanks!

 

[interested]

The interest is paid at the prescribed rate according to the condo act. I believe the prescribed rate is 2% below the bank rate which presently is 0.25%. In other words, no interest. It cannot be a negative number. Alternatively, it may be 2% below prime which is 3% I believe, which would result in 1% interest from the time the deposit payment is made to present.
Perhaps someone could confirm.
Sorry Xenosblitz, but if I am correct with my first assumption, you and the rest of us will be getting "no interest" on our deposits.

 

[Exodus]

I was thinking of increasing my downpayment prior to occupancy to decrease the phantom rent. Bear in mind that I don't have much experience with the intricacies, rules and the like. I was wondering why the banks don't offer you mortgages until registration of the condo? If they did, then this would negate the necessity of purchasers for paying such a large phantom rent. I realize that techniquely you don't own the property and that there is still the risk that the project may fold.

Alternatively could purchasers apply for a loan/line of credit to pay the downpayment? I wonder if the interest rates for a LOC would be better than the interest rate of the builders mortgage

Just food for thought..

 

[interested]

I was thinking of increasing my downpayment prior to occupancy to decrease the phantom rent. Bear in mind that I don't have much experience with the intricacies, rules and the like. I was wondering why the banks don't offer you mortgages until registration of the condo? If they did, then this would negate the necessity of purchasers for paying such a large phantom rent. I realize that techniquely you don't own the property and that there is still the risk that the project may fold.
Alternatively could purchasers apply for a loan/line of credit to pay the downpayment? I wonder if the interest rates for a LOC would be better than the interest rate of the builders mortgage

Just food for thought..

You can't borrow prior to taking title because the bank can't put a mortgage on a property that has not been registered and that you do not own. After all, if you work through the logic of this: if you decided not to pay the mortgage, the usual recourse is to repossess the property. In this scenario, the bank can't repossess something you had no right to assign that you do not in fact own'


In response to: "Alternatively could purchasers apply for a loan/line of credit to pay the downpayment? I wonder if the interest rates for a LOC would be better than the interest rate of the builders mortgage". I suspect a line of credit will be higher than a 1 year mortgage which is currently around 3-3.5%. Usually LOC are Prime+ 1-2% depending on your credit. Also, I believe as others have written it depends on your contract.

 

[KA1]

Sorry Xenosblitz, but if I am correct with my first assumption, you and the rest of us will be getting "no interest" on our deposits.

A comment re: interest on deposits.

Interest accrues only if the deposit is paid directly to the builder. Tarion guarantees deposit to a builder upto a certain amount only. Any excess deposit over this amount is uninsured -- in case developer goes under.

In the case of Canderel -- from whom I have bought units twice -- deposit goes directly in the 'Trust' account of their lawyers. It means that in case developer goes under, full deposit will be refunded to the purchaser. Purchaser does not get even a penny of interest on the deposit. Interest earned on the deposits in the 'Trust' account of law firm goes directly to Law Society of Upper Camada.

 

[interested]

^^^
I am intrigued by the last statement Ka1.
I have no doubt you state this from knowledge but I have a question. One condo that I put a downpayment on in 2008 got cancelled in 2010. I did get some interest on this downpayment, at least initially because rates were high enough. By late 2009 or 2010 the rates had fallen enough that no interest was owing.. The money was in trust at the law firm and exceeded the $20K.
I guess maybe it is different if the developer goes under than if he just decides not to proceed. The condo act does prescribe that he pays interest at the "prescribed rate" but I guess that is off in the event of bankruptcy?

 

[KA1]

^^^
I am intrigued by the last statement Ka1.

I guess maybe it is different if the developer goes under than if he just decides not to proceed. The condo act does prescribe that he pays interest at the "prescribed rate" but I guess that is off in the event of bankruptcy?

Yes.

Like in any bankruptcy purchaser will get back, proportionately, what is left, if any, after paying off 'secured' creditors.

 

[Wooba]

A comment re: interest on deposits.

Interest accrues only if the deposit is paid directly to the builder. Tarion guarantees deposit to a builder upto a certain amount only. Any excess deposit over this amount is uninsured -- in case developer goes under.

In the case of Canderel -- from whom I have bought units twice -- deposit goes directly in the 'Trust' account of their lawyers. It means that in case developer goes under, full deposit will be refunded to the purchaser. Purchaser does not get even a penny of interest on the deposit. Interest earned on the deposits in the 'Trust' account of law firm goes directly to Law Society of Upper Camada.

I've purchased three condos, each of which I paid to the builders solicitor in trust. Each time I was paid interest on closing.

 

[interested]

^^^
I believe Wooba is correct in that this has been my experience as well.
However, I believe the interest is dependent on prevailing interest rates of prime - 2%. could someone maybe clarify who knows how the prescribed rate is calculated.

All the deposits I have paid have gone to the solicitor of the builder in trust. I believe they modified the condo act for just this reason but again maybe someone with more knowledge could comment.

 

[KA1]

I've purchased three condos, each of which I paid to the builders solicitor in trust. Each time I was paid interest on closing.

Thanks for the info. I will pursue this matter with the builder through the lawyer.