Stamp duty can be a significant cost to consider when purchasing a property. In addition to your deposit and other fees and charges, the stamp duty can add thousands of dollars to your initial charges, depending on the value of the property. It is therefore not surprising that some Australians are looking for other ways to manage this expense, such as borrowing money for stamp duty.
Stamp duty is not like a home loan or personal loan, where you can pay it off in installments over time. As an upfront charge, you are supposed to make a payment to cover its cost at the start of your mortgage term.
Applying for a personal loan to help pay the stamp duty is unlikely to be successful. Most lenders will want to know what your loan is when you apply, and few are likely to grant a loan to cover the upfront costs of a home loan.
Some states and territories may allow you to use your credit card to pay stamp duty, for example through BPAY, although, like other credit card purchases, this carries the risk of paying interest. There may also be an additional charge, and the payment may be considered a cash advance, which means you will be charged interest at a higher rate.
An alternative option could be to capitalize the cost of the stamp duty by adding it to your home loan. Not all lenders allow this option, but some do.
It’s important to remember that increasing the size of your home loan like this can increase your loan-to-value ratio (LVR). This could mean having to pay mortgage lender insurance (LMI) on your home loan. Sometimes LMI can also be capitalized into your loan, but the cost can still be significant.
Capitalizing on the upfront costs of your home loan can cost you more than you expected. This is because payment over time means that interest on these fees and charges is charged. Unless you make extra payments on your home loan to help reduce your loan principal quickly, you could end up paying a lot more interest on your stamp duty than paying the fees up front. .
Keep in mind that stamp duties may be reduced or even waived for some borrowers, especially first-time buyers. Check with your state or territory government to find out more about what is available. Additionally, some governments such as New South Wales are considering phasing out the original stamp duty in favor of an ongoing property tax, which could affect your property budget.
If you’re not sure how best to handle the cost of stamp duty when applying for a mortgage, consider contacting a mortgage broker. These mortgage experts can walk you through all the costs, fees, and other charges associated with getting a mortgage, and help you determine which lenders have deals that may meet your needs.