A deposit bond is an alternative method of paying a deposit on the purchase of a property. A deposit bond is essentially an insurance policy. The deposit bond is a policy document that tells the vendor that the insurance company will pay the 10% deposit to the vendor in any of the circumstances where the deposit would ordinarily be forfeited by the purchaser. The deposit bond issuing company will then seek to recover the deposit amount from the purchaser.
No money actually changes hands under the deposit bond. Instead, all purchase funds are paid at settlement. In the ordinary course of events settlement takes place, the purchase price is paid in full, and the deposit bond simply lapses. The value of the deposit bond may be for all or part of the 10% deposit and may be for a period of 6, 12 or 48 months.
Deposit bonds are regularly used for people buying 'off the plan' properties given the extended time period that is usually associated with these transactions. They are also used by purchasers who don’t have cash available to pay the deposit and by investors who are borrowing the full purchase price.
Bonds are also an ideal method of paying a deposit at auction as the property details are left blank which enables the purchaser to bid at multiple auctions with the one deposit bond. The final vendor and property details may then be completed at auction if you are the successful bidder. Any Australian permanent resident, registered company, self-managed super fund or trust is eligible to apply. The application fee is a certain percentage of the value of the bond.
You may apply for a deposit bond via your lending institution or online by completing the required application forms. If you would like to find out more information about a deposit bond please give us a call on 63312911.