What is a deposit bond and how does it work?
A deposit bond is something you use in lieu of cash when paying your deposit on a property. They range in costs, depending on the term you require the bond for ie. 3 or 6 months & the amount of the deposit to be guaranteed ie. $10k or $20k.
The only time a bank can issue one of these for you is if you have a loan approval for the said property.
Dont confuse a deposit bond with a deposit guarantee – a guarantee is something you may use for a longer term ie. as a deposit for an off the plan apartment and these typically require security.
Cheers
MattA deposit bond is used in lieu of a cash deposit for the purchase of a residential property which provides you with the ability to delay payment of the deposit until settlement. It is suitable for clients borrowing 100% of property purchase price often in the case of first home buyers or investors and also for clients buying off the plan who do not wish to use their own funds to secure the property purchase until settlement. They are generally cost effective ie approx 1.18% (subject to change) of the deposit amount. It is worth negotiating a 5% instead of 10% deposit with the vendor (perhaps after you have negotiated purchase price).
Anita Marshall
Advanced Finance Solutions
http://www.advancedfinance.com.au
[email protected]Thanks for the responses.
If you use a deposit bond, how easy is it to get 100% financing from the bank? I thought the bank would only grant, say, max 90% finance? That would mean on settlement you still need to come up with 10%, which would be the same as putting down a 10% deposit in the first place and avoiding the cost of a deposit bond.Hi seven
100% finance is offered by a few lenders out there but you will pay for it somewhere whether it be a slightly higher interest rate or application fee or other.
If the property is a PPOR and you have access to a deposit then often you are better of in borrowing less and getting the benefits of a lower interest rate etc.
If the vendor insists on a 10% deposit and you are borrowing more than 90% of the loan amount then a deposit bond or similar would be an option.
Cheers Richard
Ph: 07 3720 1888
[email protected]
http://www.yourstatefinance.comSpecialising in US & IP finance.
Richard Taylor | Australia's leading private lender
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