Can Stamp Duty be Added to Your Mortgage?

Buying a home in Australia is a significant financial decision, with one of the largest upfront costs being stamp duty. This government tax, levied on property transactions, often catches first-time buyers and even experienced homeowners off guard due to its considerable cost. Managing stamp duty can be a challenge, especially for those who are already stretching their budgets to secure a home loan. One common question that arises is whether stamp duty can be added to the mortgage itself to ease the burden of paying it upfront.

This article will explore whether it is possible to incorporate stamp duty into your mortgage, providing clarity for homebuyers looking to spread the costs. Additionally, we will examine potential benefits and drawbacks, as well as alternatives to managing stamp duty. Understanding these options will allow homebuyers to make informed decisions and better manage their finances during the home-buying process.

What is Stamp Duty in Australia?

Stamp duty is a government tax applied to property transactions, including the purchase of homes, land, and investment properties. It is charged by state and territory governments and is based on the value of the property being purchased. The purpose of stamp duty is to generate revenue for public services, but for buyers, it adds a significant upfront cost to the property purchase process. This tax is mandatory and must be paid before settlement in most Australian states, which can put additional financial pressure on homebuyers.

The amount of stamp duty varies significantly depending on the value of the property and your location. Each state and territory in Australia has its own rate structure, with some areas offering exemptions or discounts for first-home buyers or certain types of properties. Use our Stamp Duty Calculator to estimate the amount of stamp duty based on your situation. Buyers need to be aware of the specific rates and any concessions available in their region to accurately budget for the total cost of purchasing a property.

Can Stamp Duty Be Added to a Mortgage?

In general, Australian lenders do not allow stamp duty to be added directly to the mortgage. This is because stamp duty is typically viewed as an upfront cost that must be paid at the time of settlement, separate from the home loan. Lenders are primarily focused on financing the property itself and tend to exclude taxes like stamp duty from the loan amount. As a result, homebuyers are usually required to have enough savings to cover stamp duty, in addition to their deposit and other associated costs.

However, there may be indirect ways to manage stamp duty within a mortgage structure. Some lenders may allow borrowers to increase the loan amount beyond the property price to cover additional expenses, which could include stamp duty. This is more likely if the borrower has a strong financial position, such as a high credit score or significant equity in another property. Specialised loan products or package deals might also be available that can assist in covering stamp duty costs, though these options are limited and may come with additional conditions.

Benefits and Drawbacks of Adding Stamp Duty to Your Mortgage

One of the key benefits of adding stamp duty to your mortgage, if possible, is the reduction of the immediate financial burden. Homebuyers, particularly first-time buyers, often struggle to save enough for a deposit, let alone the additional costs of stamp duty. By rolling this cost into the mortgage, buyers can spread the payments over the loan term, making the upfront cost of purchasing a home more manageable. This approach can help buyers enter the property market sooner by reducing the amount of cash needed at settlement.

On the other hand, adding stamp duty to your mortgage increases the total loan amount, which means you will be paying interest on that additional sum over the life of the loan. This can significantly increase the overall cost of the mortgage, as the stamp duty amount will accumulate interest over time. Additionally, a larger loan amount may lead to higher monthly repayments, putting more strain on your budget. Buyers need to carefully weigh the short-term benefits against the long-term financial impact before choosing this option.

Other Options to Manage Stamp Duty Costs

For those who cannot add stamp duty to their mortgage, there are other ways to manage this cost. One option is to take advantage of government grants and concessions that can reduce or eliminate stamp duty for eligible buyers. For example, first-home buyers in many states and territories may be eligible for exemptions or discounts on stamp duty. These schemes are designed to make it easier for new buyers to enter the property market, especially in high-demand areas where property prices and taxes can be particularly high.

Alternatively, some buyers choose to cover stamp duty through personal savings or by taking out a separate loan. While this may not be ideal for everyone, it can help bridge the gap if stamp duty exceeds your available funds. However, personal loans typically come with higher interest rates than home loans, so it’s important to consider the cost of borrowing separately. Budgeting in advance for stamp duty and building up savings over time can also be a more financially prudent approach to handling this expense.

Tips for Budgeting for Stamp Duty

When purchasing a property, it’s important to estimate the total costs accurately, including stamp duty. Many online calculators can help you estimate the amount of stamp duty you will need to pay based on your property’s location and value. Once you have a clear understanding of these costs, it’s essential to include them in your overall home-buying budget, alongside other expenses such as legal fees, lender’s mortgage insurance, and moving costs. Properly budgeting for all upfront costs will help ensure that you are financially prepared when the time comes to purchase your home.

In the long term, careful financial planning is key to managing these costs. Buyers should explore all available options for reducing stamp duty, such as concessions or grants, and consider how these savings can be used to strengthen their overall financial position. Being proactive about saving for stamp duty and other upfront expenses can also give you more flexibility and reduce reliance on borrowing. By planning ahead and keeping track of property market changes and government policies, you can make more informed decisions about when and how to purchase your home.

Conclusion

In Australia, stamp duty is typically not added directly to a mortgage, but there are ways to manage this significant upfront cost. Homebuyers can explore options such as increasing their loan amount, or take advantage of government concessions and grants.

It’s crucial to carefully weigh the benefits and drawbacks of any approach to ensure you are making the best financial decision for your situation. By understanding your options, budgeting effectively, and seeking professional advice when necessary, you can navigate the home-buying process with confidence and minimise the financial strain of stamp duty.

Speak to a Mortgage Broker

If you need help getting a loan and covering your stamp duty, speak to an experienced mortgage broker from Eden Emerald Mortgages. Their services are 100% free of charge to you (they are paid a commission by the lender), and they can help you find the best loan for you and negotiate the lowest interest rates from 40+ lenders.