Deposit Bonds June 23, 2015
At Better Choice Mortgage Services we understand that the burden of significant cash out lay once the vendor accepts your offer can be difficult or impractical. Your cash may be tied up in a term deposit which may prove costly to break or the majority of your cash may be tied up in real estate equity and accessing this equity may take longer than is practical. And if you are ‘buying off the plan’ your deposit may be ‘tied up’ for up to 5 years!
The solution to these conundrums may be a Deposit Bond (DB). A DB takes the place of the cash deposit required between the time the vendor accepts your offer and the day of settlement. At settlement you must pay the final purchase price of the property (including the amount of the DB). Your loan or cash equity takes the place of the DB.
DB’s are especially useful in purchasing apartments off the plan where the vendor requires a 10% deposit and the apartment may take up to 5 years to complete.
A DB is also useful in Australian states where a 10% deposit is the norm eg NSW.
If you, as the purchaser fail to settle on the property the vendor may then request that the DB issuer pay to the vendor the face value of the bond. The issuer of the DB will then pursue you for the face value of the bond.
Advantages of DB’s:
- Cost effective: The once off premium is generally less than interest costs if you were to raise a loan for the deposit.
- The application process for DB’s is very streamlined and a DB may be available within 5 days of application
- Saves you having to break term deposits or access equity within existing properties
- Especially useful when purchasing apartments off the plan, where your deposit may be tied up for up to 5 years.
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