Why do I have to pay sales tax on my mortgage insurance in cash?
Because Ontario taxes the insurance premium, and while the premium itself is added to your mortgage, the tax on it cannot be. It is due in cash on closing and it is the line buyers most often discover late.
If your down payment is under twenty percent, the mortgage is insured and the premium is capitalized, meaning added to the loan balance and paid off over the amortization. Ontario charges retail sales tax on that premium under the Retail Sales Tax Act, which still applies to insurance premiums even though the HST replaced the retail sales tax on almost everything else in 2010. That is why the line looks like a tax that should not exist, and why calling it PST, as almost everyone does including this page's own address, is a habit rather than a description.
The tax is not capitalized. Your lawyer collects it with the rest of the cash to close. On a mid-priced GTA purchase with a small down payment it runs into the low thousands, and it appears on the statement of adjustments as a line nobody warned the buyer about.
It is unavoidable if you are putting less than twenty percent down. The only thing to do about it is budget for it, which is a reason to calculate your full cash to close rather than assuming closing costs are legal fees and land transfer tax.
Answer it with your own numbers
You will need: purchase price, down payment, amortization.
See the tax on your premiumNext questions
What is mortgage default insurance and who does it protect?
It protects the lender, not you. It is required below twenty percent down, the premium is added to your mortgage, and in Ontario the retail sales tax on that premium is cash you pay on closing.
Canada-wide
How much cash do I actually need on closing day?
Your down payment plus closing costs, which this app's own estimate puts at roughly one and a half to three percent of the price outside Toronto and above four percent inside it, because Toronto charges a second land transfer tax.
Ontario