What is a Deposit Bond?

A deposit bond is a great solution for home buyers that are looking to purchase, but don’t have ready and convenient access to the 10% cash deposit required.

Perhaps, you have cash locked away in equity in a property that you have sold or intend to sell or you’re a First Home Buyer wanting to use government funds to assist with your deposit.

How Does a Deposit Bond Work?

A buyer or investor will normally have to provide a cash deposit, typically at 10% of the purchase price, when purchasing property or land. A deposit bond bridges this gap by allowing buyers to secure their home now, and then pay the deposit and the balance of the purchase price at settlement when their funds will be available.

A deposit bond acts as a guarantee for the deposit when you buy a property (even if you don’t have the cash now). At settlement, you pay for the deposit, including the balance of the purchase price, either from the sale of your existing property or from the finance you obtain (i.e. physical funds are not transferred to the vendor at settlement, a deposit bond is purely a guarantee that you will have the deposit funds when it comes time to settle).

What are the Benefits?

• Retain cash for your purchase without having to totally allocate it to the deposit
• Secure your property quickly, even if you don’t have access to a 10% cash deposit
• A cheaper and quicker alternative to borrowing money for your deposit
• Keep your cash working for you by leaving it in an offset and use a Deposit Bond instead
• Borrow 100% of the purchase price with the loan funds only available at settlement
• Purchasers or investors who have their assets tied up in property and are cash poor
• Buy and sell simultaneously

Using a Deposit Bond can be more cost effective

With increasing interest rate rises, the cost of borrowing money is also getting higher where it could cost a buyer or investor more to use their cash on hand rather than a deposit bond.

A deposit bond under six months costs 1.3% of the deposit amount, but the current interest rate is approximately around 5.5 to 6%, which is what a homebuyer’s money may be offsetting in the mortgage account. In particular, for longer settlements (which typically apply to off-the-plan properties), utilising cash for such a long period can cost more money in the long run. This is why a deposit bond can be a more financially viable option for buyers.

Buying at Auction or Getting a Pre-approval?

You can obtain a pre-approved deposit bond that lasts for 6 months and can be updated with the purchase price once you find the property you want to bid on or purchase.

Get in touch with us today

The deposit bond should be your first step to securing a property when you don’t have the cash deposit on hand. If you need help securing your next purchase and would like to find out more about your deposit options, give the team a call.

*Source: www.depositassure.com.au

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.