Deposit bonds are a substitute for the cash deposit you need to pay when buying a home. They give you the freedom to concentrate on finding the right property, and keep your savings earning interest right up until the day of settlement. Read on to find out more about deposit bonds, including when you might use them, how much they cost and how to apply.

1. What is a deposit bond?
2. When should I use deposit bonds?
3. How much does a deposit bond cost?
4. What are the cost savings of a deposit bond?
5. How do I apply for a deposit bond?

1. What is a deposit bond?

The deposit on a home purchase is normally paid when contracts are exchanged, or at auction when you’re the the successful bidder. A deposit bond is an alternative to paying the deposit with your own immediate funds. Deposit bonds can be issued for all or part of your deposit, usually up to 10% of the home purchase price. Once you’ve settled, the deposit needs to be paid back to the lender.

Benefits of deposit bonds:

• Ready access to cash with no need to dip into savings. If your savings are tied up in investment terms, for example, you may incur fees for early access
• Relatively inexpensive – depending on the lender, of course
• The convenience of being ready to bid at auctions and be ready to act on a private sale to help you secure the property you want

Standard deposit bonds are available for settlement periods of up to 6 months. Longer term deposit bonds are also available for 6-48 months which suits people buying ‘off the plan,’ under construction or land with an extended settlement.

Remember that deposit bonds replace the need for a cash deposit, but they don’t remove your obligation to pay the full deposit and purchase price at settlement.

Ask a Mortgageport expert if deposit bonds are right for you. Call 1800 100 747 now, with no charges or obligations whatsoever.

2. When should I use deposit bonds?

You might consider deposit bonds when:

• You’ve sold your current home but funds are not yet available to pay the deposit on your new home
• You’re a first home buyer don’t have the full 10% cash deposit
• You’re an investor and loan funds are not available until settlement
• You don’t want to pay a penalty for breaking a fixed term investment or selling shares
• You want the convenience of being ready to bid or buy without having to arrange deposit funds every time

3. How much does a deposit bond cost?

The cost of a deposit bond depends on the property value and 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.

Example: you’re buying a home for $500,000 and need a 10% deposit of $50,000. It would cost you around $600 for a deposit bond.

4. How much can I save with a deposit bond?

The cost savings can be considerable.

For example, the fee for a $30,000 deposit bond is $360.

By comparison, a short term loan 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 save around $367.

5. How do I apply for a deposit bond?

Mortgageport makes it easy to apply for a deposit bond. Contact Mortgageport and complete an application form to show us that you have sufficient funds to complete the purchase at settlement. You can demonstrate this with:

• Your home loan approval
• A copy of the Contract for property sold that will assist in the purchase of your new property
• Other funds that are accessible prior to the completion date, such as savings, a fixed term deposit or share certificates
• Evidence of other funds such as the First Home Owners Grant

Would you like free expert advice to help work out how much deposit bonds could save you?

Call Mortgageport today on 1800 100 747. We’re here to help.