Also known as deposit guarantees, a deposit bond (usually up to 10% of the purchase price) is used in lieu of the cash deposit required between signing the contract of sale and settlement. Think of them as a form of IOU for the deposit amount, ensuring the seller you are good for the money, although no actual money changes hand until settlement.

Once your residential settlement has completed and the purchase price is paid in full, your deposit bond lapses.

Deposit bonds are ideal for first home buyers, those looking to purchase a new property and investors looking to expand their portfolios. They allow buyers to go ahead with a sale while waiting for funds from the sale of their property, or for those who have equity but no liquid funds.

And remember, whether you are a first-time home buyer, or a savvy investor, it is still imperative that all the proper procedures are correctly carried out before you get to hold the keys to your new property in your hand. If you are considering buying a property, in Perth or elsewhere, C&R Settlements are ready to perform your property settlement for you.

Deposit bond benefits

Using a deposit bond allows you to leave your savings untouched and earning interest right up until the funds are required at your residential settlement. They also allow you to secure your purchase in a timely manner, as cash deposits can take some time to organise, and if your savings are locked into investment terms using a deposit bond means avoiding early access fees.

Deposit bonds can also help you avoid applying for bridging finance. They are valid for both long and short-term loans, with standard deposit bonds available for settlement periods of up to 6 months. Longer term deposit bonds are available for 6-48 months, perfect for those buyers purchasing ‘off the plan,’ under construction or land with an extended settlement period.

Even better, you can use deposit bonds at auctions and be ready to act on private sales (with prior vendor acceptance), helping you secure the property you want.

When is a deposit bond paid?

Home deposits are usually paid paid when contracts are exchanged, or at an auction when your bid is successful. A deposit bond is used to pay the required deposit without using your savings. Once your property has settled, the lender is repaid the deposit.

Deposit bonds need to be repaid

It’s important to remember that deposit bonds still need to be repaid at settlement. While they may facilitate a smooth purchase transaction by replacing the need for a cash deposit, you are still required to pay the deposit and the full purchase price at settlement.

Deposit bond costs

The cost of a deposit bond depends on the property value, the length of time to settlement, and the bond provider. As a general rule, most deposit bonds cost approximately 1.2%/1.3% of the purchase price. This fee is a one-off payment – often it is partly refundable if you end up not using it.

For example: If the purchase price is $650,000 and you’ll need a 10% deposit of $65,000. A deposit bond at 1.2% would cost you around $780.

Deposit bonds are not always accepted

Be aware that some vendors may refuse to accept deposit bonds, especially if they want to use a cash deposit to fund another purchase (or payment). A contract of sale may also stipulate cash deposits only, so ensure you clarify your intention to use a deposit bond upfront.

Checking with vendor, real estate agent or developer about using a deposit bond before getting one will help you avoid unnecessary costs. As securing a deposit bond comes at a cost, not informing the relevant parties about your intention to use one can cause you financial woes, especially when it comes to formalising the purchase of your property.

Why C&R Settlements?

We approach every settlement with patience and understanding, working collaboratively to achieve a timely and stress-free settlement. Our team pride themselves on working with clients to make the settlement process as simple and easy as possible. Call us today for a Perth settlement quote and let us help guide you through the moving process. We are Perth’s most trusted settlement agency because our clients have access to certified legal advice at the price of a settlement agent.

If you have any questions about deposit bonds, don’t hesitate to contact us today.