Deposit Bonds

Deposit Bonds

Deposit bonds are an alternative to a cash deposit. They are effectively a guarantee to the vendor equal to the amount of deposit required and are a cash deposit substitute between signing the contract and settlement of the property. Deposit bonds can be issued for all or part of a deposit, but are usually for 10% of the purchase price and cost about 1.2% of the deposit. For example, if a 10% deposit on a $500,000 property is $50,000, a deposit bond will cost you $600.

Why do people purchase Deposit Bonds?

Cash for the 10%, or even 5%, deposit required to enter into a contract on another property is often tied up in the current home or other investments or you may want to finance the entire loan amount. Covering a deposit can mean either expensive bridging finance or other borrowing. Regardless of where the finance is obtained, interest charges, establishment fees and other up-front costs connected with the loan can be expensive and time-consuming to arrange. In summary you would typically use deposit bonds for a number of reasons:

• Your savings remain intact
• You can avoid the expense and time delays involved in bridging finance
• You can purchase "off the plan" residential properties, which typically have longer settlement times
• You can use a deposit bond at auction
• Deposit bonds are generally available for anywhere up to four years

Who accepts Deposit Bonds?

Most vendors and agents will accept a deposit bond, but it is the sole discretion of the vendor as to whether they accept them or not. You definitely need to check and you need prior consent to use them at auction. Once approved, deposit bonds can usually be organised within 24 hours.

When does the Deposit Bond expire?

The deposit bond ceases when the contract of sale is completed, terminated, rescinded or the expiry date occurs, whichever happens first. Typically you would pay the vendor the full purchase price of the property, including the deposit.

"I saw two other brokers and spoke to a number of banks, before I was recommended to Paul Moulday. He showed me how I could save a lot of money, where the other people I spoke to were not that interested. He went out of his way to accommodate my busy schedule." Katherine Dalmanin, Briar Hill