Stamp duty can be a significant cost factor when buying a property. In addition to your security deposit and other fees and charges, stamp tax can add thousands of dollars to your up-front costs, depending on the value of the property. It is therefore not surprising that some Australians are looking for alternative ways to manage this expense, such as borrowing money for stamp duty.
Stamp tax is not like a home loan or a personal loan where you can pay it off in installments over time. As an upfront payment, you must make a payment at the beginning of the term of your home loan to cover the cost.
Applying for a personal loan to pay stamp duty is unlikely to be successful. Most lenders will want to know the purpose of your loan when you apply, and few are likely to provide a loan to cover the upfront cost of a home loan.
In some states and territories, you may be able to use your credit card to pay stamp duty; B. via BPAY, although, like other credit card purchases, there is a risk of paying interest. There may also be an additional surcharge and the payment can be considered a cash advance which means you will be charged a higher interest rate.
An alternative option could be to activate the cost of stamp duty and add it to your home loan. Not every lender will allow this option, but some do.
It is important to remember that increasing the size of your home loan in this way can increase your loan-to-value ratio (LVR). This could mean paying the Lender’s Mortgage Insurance (LMI) for your home loan. Sometimes LMI can be activated on your loan as well, but the cost can still be significant.
If you capitalize on the prepayments on your home loan, you can end up costing more than you expect. This is because paying in installments will add interest to these fees and charges over time. If you don’t additionally pay back your home loan to quickly reduce your loan capital, you could end up paying much more interest on your stamp duty than if you paid the fees up front.
Note that stamp duty may be reduced or even waived for certain borrowers, especially first-time buyers. Check with the government of your state or territory to learn more about the options available. Additionally, some governments, such as New South Wales, are considering getting rid of stamp duty upfront in favor of an ongoing property tax, which could affect your property budget.
If you are unsure how best to manage stamp duty costs when applying for a mortgage, you should contact a mortgage broker. These home loan experts can walk you through all of the costs, fees, and other charges associated with taking out a mortgage and help you identify which lenders have deals that meet your needs.