Stamp duty can be a significant cost to consider when buying a property. As well as your deposit and other fees and charges, stamp duty can add thousands of dollars to your upfront costs, depending on the value of the property. So it’s not surprising that some Australians look for alternative ways to manage this expense, such as borrowing money for stamp duty.
Stamp duty isn’t like a home loan or a personal loan, where you can gradually pay it off in instalments over time. As an upfront charge, you’re supposed to make one payment to cover its cost at the start of your home loan term.
Applying for a personal loan to help pay for stamp duty is unlikely to succeed. Most lenders will want to know your loan’s purpose when you make your application, and few are likely to provide a loan to cover a home loan’s upfront costs.
Some states and territories may allow you to use your credit card to pay for stamp duty, such as through BPAY, though like other credit card purchases this comes with the risk of being charged interest. There may also be an extra surcharge involved, and the payment may be considered a cash advance, meaning you’ll be charged interest at a higher rate.
An alternative option could be to capitalise the cost of stamp duty, adding it to your home loan. Not every lender will 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 Lender’s Mortgage Insurance (LMI) on your home loan. Sometimes LMI can also be capitalised into your loan, but the cost can still be significant.
Capitalising any of your home loan’s upfront charges can end up costing you more than you expect. This is because paying in instalments over time means being charged interest on these fees and charges. Unless you make extra repayments onto your home loan to help quickly reduce your loan principal, you could end up paying much more in interest on your stamp duty than you would by paying the charges upfront.
Keep in mind that stamp duty may be discounted or even waived for certain borrowers, especially first home buyers. Check with your state or territory’s government to learn more about what’s available. Additionally, some governments such as New South Wales are looking at phasing out upfront stamp duty in favour of an ongoing property tax, which could affect your property budget.
If you’re unsure of the best way to manage the cost of stamp duty when you apply for a mortgage, consider contacting a mortgage broker. These home loan experts can take you through all of the costs, fees, and other charges involved in getting a mortgage, and help you work out which lenders offer deals that may suit your needs.