Short answer
Property-tax arrears normally must be disclosed and addressed. The lender and lawyer may require them to be paid from mortgage proceeds, and the lender may ask for proof that taxes will remain current. If arrears are substantial, the planned refinance amount may no longer solve the client’s cash-flow problem.
Why this becomes a closing problem
The homeowner expects a refinance to pay credit cards, but several years of tax arrears and penalties consume part of the advance. A deal that looked sufficient on the credit application produces much less usable money at closing.
A practical Ontario example
The new mortgage appears to release $60,000, but tax arrears, mortgage penalties, lender fees and legal costs reduce usable proceeds to $31,000. The broker should test the complete payout statement before recommending the transaction.
How the lending routes may differ
- A lender: may require taxes current and may use a tax-payment arrangement depending on risk and policy.
- Alternative/B lender: can sometimes include arrears in a refinance when equity and income fit, with lender-specific conditions.
- MIC/private lender: may provide a short-term payout solution where equity is strong, but the exit must prevent arrears from rebuilding.
Important boundary: Ontario legislation and legal-registration requirements are not lender underwriting policies. Each lender decides its acceptable borrower, property, priority and documentation requirements, while the closing lawyer determines the legal work needed.
Questions to ask now
- What is the municipality’s current tax balance?
- Are penalties or a tax-arrears certificate involved?
- How much cash remains after every payout and fee?
- What budget change will keep future taxes current?
Rajiv’s practical view
Ask for a current tax statement, not an estimate from memory. A refinance should solve the cause of the arrears and leave a sustainable payment—not merely postpone the same problem.
Source and context
This is general Ontario education, not legal, tax or title advice. Obtain transaction-specific advice from the closing lawyer and other appropriate professionals.
Continue your research
Closing-problem guidance · Real Estate Centre · Mortgage Knowledge Centre
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Rajiv Verma, Mortgage Broker · Ontario