What is a deposit bond?
Also known a deposit guarantees, a deposit bond is used in place of the cash deposit required between signing the contract of sale and settlement.
Think of a deposit bond as an IOU for the deposit amount you need to secure your property.
Just like a cash deposit, a deposit bond guarantees your commitment to an unconditional contract of sale. Then, at settlement, you simply pay the full purchase price, including the deposit amount and any other costs, like stamp duty.
The only money that is exchanging hands is the deposit bond fee, which you pay to the deposit bond provider upfront.
What it is not?
There can be confusion that a deposit bond can be used as a deposit to help secure finance from your bank or lender. That’s not the case.
In fact, a deposit bond can only be used as the deposit (up to 10%) to guarantee your commitment to the purchase of real estate or land to the vendor.
Why use a deposit bond?
Deposit bonds are a smart option if you want to purchase a property but don’t have ready access to a cash deposit – but you will by the time of settlement. You might be a first home buyer who simply doesn’t have enough cash sitting in the bank for the deposit. Or you might be downsizing to a smaller property, but because you haven’t yet sold your current home, your deposit is still tied up.