Oftentimes, buyers get so caught up in coming up with their down payment that major expenses like property tax will fall to the wayside. Property tax can get expensive depending on where you live. That’s why it’s important to take this cost into consideration before you make any decisions. Here’s what you need to know about this significant carrying cost and why it’s key to factor this into your budget.

What is property tax and how is it calculated?

A monthly or annual fee, property tax is based on various factors including the value of your home, its relative value compared to other homes in your area, as well as its size, age and location. Every four years, properties are assessed to determine their value and homeowners are then notified with an assessment letter to learn what their home is worth. After that, the value of every home is added up and divided by the cost of services in each municipality, which determines the property tax rate.

Why do we pay property tax?

Property taxes are used to pay for municipal services such as snow removal, garbage disposal, recycling collection, recreational facilities, road maintenance and emergency services such as police, fire and paramedics. Ultimately, this tax is intended to fund special projects and services that improve the quality of the municipality and the public amenities that it provides.

Why should this be factored into your budget?

Since property tax varies from one city to the next, taking this into account at the start of your home search will help you determine which neighborhoods you can afford to buy in. It’s a good idea to start by getting pre-approved to understand your home price affordability and set a realistic budget for all other household expenses. Property tax is a recurring cost, so it’s better to know early on if this is something that you can afford long-term.


Ryan and Vanessa are interested in a particular home in a neighbourhood they really like. This home has been assessed at $880,000 and the current tax rate in that municipality is 0.7%. This means that their property tax will be 0.7% of $880,000, which equals to $6,160 a year. Before making a purchase decision, Ryan and Vanessa should consider whether or not they’ll be able to afford this annually, in addition to their other expenses.

You can pay property tax with your mortgage

Financial institutions will often allow homeowners to embed their property tax with their monthly mortgage payments. This option is a great way to reduce the financial burden as it divides the property tax into monthly installments so you don’t have to pay an annual lump sum.

At Homewise, our goal is to help home buyers prepare for the home buying process and that includes understanding all of your expenses upfront. If you’re looking to enter the market any time soon, get pre-approved with us in just 5 minutes to get a clear picture of your home affordability. One of our dedicated mortgage advisors will guide you every step of the way.

Check out our Affordability Calculator for a high-level view of your maximum mortgage and home affordability.