Deposit Bonds
Mortgageport can help you with your deposit to secure the property you intend to purchase.
Sometimes you may not have ready access to the cash deposit required to secure your next home (exchange contracts) or you may prefer a more cost effective or convenient alternative to using your own cash. In these cases a Deposit Bond could be the answer.
Deposit bonds are a substitute for the cash deposit needed when purchasing a home and can be issued for all or part of your deposit, up to 10% of the purchase price.
The deposit bond works like a bank guarantee, the issuer of the bond (usually an insurance company) promises to pay the deposit to the vendor of the property in the event that the purchaser does not complete the sale.
It gives you the freedom to concentrate on finding the right property – and keeps your savings earning interest right up until the day of settlement.
Situations where a deposit bond might be an option:
- Having sold your current home but funds are not yet available for your new home’s deposit
- As a first home buyer you don’t have the full 10% cash deposit required in cash
- As an investor and the loan funds are not available until settlement
- You do not want to pay a penalty for breaking a fixed term investment or selling shares
- You may want to attend one or more auctions without having to put aside funds for the deposit each time.
Standard deposit bonds are available for settlement periods of up to 6 months, and longer terms bonds of between 6 and 48 months, are available which often suits purchasers who are buying off the plan, under construction or land with extended settlements.
Deposit Bonds replace the need for a cash deposit, but they do not remove your obligation to pay the full deposit and purchase price at settlement.
How much do they cost?
The cost of a deposit bond is based on the value of the property and the length of time to settlement. At the very least you can expect to pay around 1.2% of purchase price. It’s a one-off fee that’s usually partly refundable if you don’t use it.
As an example if you were purchasing a home for $500,000 and needed a 10% deposit of $50,000 to exchange contracts, it would cost you approximately $600.00 to get a deposit bond in place.
What are the cost savings of a deposit bond?
The cost savings could be considerable. For example, the fee for a $30,000 short term guarantee is $360. Short term finance may cost you $727 based on an application fee of $450 (often 1.5% of the borrowed amount), plus interest payable of $277 (assuming an 8% interest rate over six weeks).
By using a deposit bond, you have saved $367.
What do you need to apply?
To apply, you just need to complete an application form and show us that you have sufficient funds to complete the purchase at settlement. Examples include:
- A loan approval
- A copy of the Contract for property sold that will assist in the purchase of the new property
- Funds accessible prior to the completion date, such as savings, a fixed term deposit, or share certificates
- Evidence of other funds that will assist in the purchase such as the First Home Owners Grant.
Next steps
If you think a Deposit Bond might be right for you please call us on 02 9466 8200 to discuss how we can help you with your deposit needs.
Most applications are able to be approved and available within 24 hours.
