Forums / Getting Technical / Finance / Deposit- My money or bond?

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  • Profile photo of lulu1lulu1
    Participant
    @lulu1
    Join Date: 2004
    Post Count: 32
    About to buy investment property. My deposit- I am unsure whether to use my own funds or get a deposit bond?

    Unsure mainly because I do not know if one of those options would be tax deductable or none of them?

    Also if I utilise a bond should I see if I can pay 5% rather then 10% deposit and if the cost in purchasing

    a bond at either amount changes much?

    Thanks in advance

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,190

    Bonds are a lot of mucking around and you will end up paying more.

    Cash is easier, but you should think about deductibility. carefully structure this so that the interest will be deductible.
    eg You don't want to pay $40,000 cash deposit if you still have non deductible debt, you would want to borrow the $40,000.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of DerekDerek
    Member
    @derek
    Join Date: 2004
    Post Count: 3,544

    Purely and simple it is a question of numbers.

    What cost will the deposit bond be? Bear in mind it will need to cover the sunset clause date for the contract. The longer the bond is required the more expensive it becomes.

    Weight that up with the consequences of using your cash. As Terry said using cash on an IP is not usually the best option, but it does vary from individual to individual.

    Profile photo of Mick CMick C
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    @shape
    Join Date: 2010
    Post Count: 1,099

    Having a DB is about protection and flexabililty as well…not just about cost….if it comes down to cost- then yes DB will lose out “most” of the time ( the DB is a business …they need to make money ^^)

    Good example of when a DB is recommended:

    1. Off the plan purchase – should the builder default, instead of chasing up your 10% back ,.you only lose out the money you pay for the DB.
    2. Money tired up- If you don’t have access to your 10% required because it’s tired up in some long term/ short term bond, term deposit or your selling a place and don’t have access to the cash yet then having a DB will give you flexabililty in time + may save you $$$ especially if your breaking a 3 + years bond early.

    Regards
    Michael

    Mick C | Shape Home Loans
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    Profile photo of lulu1lulu1
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    @lulu1
    Join Date: 2004
    Post Count: 32

    actually I do not mind using my Cash  fior deposit but i am doing a 100% lend for finance is it ok to get my money back when finance is finalised or is that no longer a tax deduction if i have used mine for deposit ????????????????

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    depends how you do it.

    If you put in cash from a savings account, you cannot later substitute this with borrowed funds and be able to claim the interest.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Mick CMick C
    Participant
    @shape
    Join Date: 2010
    Post Count: 1,099

    It sound like your using your own cash for the 10%….
    then your applying for a 100% finance from equity release/X-cross etc..

    If that’s the case, then No you won’t get your money back as the bank will not subsidize you for your part….they will only finance the purchase directly

    Regards
    Michael

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
    Email Me | Phone Me

    Same Banks. Better Rates. Served With a Passion.

    Profile photo of v8ghiav8ghia
    Member
    @v8ghia
    Join Date: 2005
    Post Count: 871
    Shape wrote:
    It sound like your using your own cash for the 10%…. then your applying for a 100% finance from equity release/X-cross etc.. If that's the case, then No you won't get your money back as the bank will not subsidize you for your part….they will only finance the purchase directly Regards Michael

    HI,

    If you have paid the deposit (10% if using a DB, and whatever you negotiate if using your own funds 'temporarily') if you have done a 100% loan, as in the case where you do this by using existing security, the bank will in fact pay the 90 % as directed at settlement, and the 10% back to you – reimbursing you as such. I have done it for customers plenty of times. As a side point, if you have sufficient equity  preferably via a line of credit, or if you are cross collatorising with other existing property you have with the lender, borrowing the 100%plus costs (likely 105%+) is even better for tax purposes. All the best with your purchase.

    Cheers

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