Deposit Bonds and Guarantees in Australia

Deposit Guarantees / Bonds

What

Deposit guarantee or bond substitutes for a cash deposit for the period between signing contracts and settlement. The guarantee can be used for all or part of the deposit required up to a maximum of 10% of the purchase price.

Acceptance

Seller has the sole authority to accept or deny a request by the buyer to use a guarantee / bond in a property transaction. Therefore, it is better for buyer to be assured that seller is going to accept the bond / guarantee in lieu of deposit.

Payment of guaranteed amount

The insurer or issuer of the bond / guarantee pays the amount in accordance with the request of the seller. The amount is paid on demand without any reference to buyer and has to be reimbursed by the buyer.

Term

The bond/ guarantee period can range from 3 months to 48 months, though 6 - 12 months is the most common period.

Benefits

	Deposit bond is an efficient way to secure a property without the need to lay out a cash deposit. Buyer can use the money till settlement which may be few months away.
	It gives the vendor security against which they can claim, should the applicant fails to complete the transaction.
	In situations where a full 10% deposit is not required ultimately (95% or 100% finance) a full 10% deposit commitment can be given to seller.
	Buyer has equity but do not have ready liquid assets to give as margin.

Fee Structure

The fees are reasonable and start from $ 100. For example, a $ 20000 guarantee which will secure a purchase of property worth $ 20000 for six months may cost only $ 240.

Caution

The deposit bond may be available at a small upfront cost but buyer has to understand that the ultimate responsibility to pay the full amount of bond is their responsibility.

To know more and get a deposit bond / guarantee issued, please contact us