| Have you found the property you want to purchase but your cash is tied up in your present home or other assets? Although you may have the 10% deposit required to secure your purchase, it may be in the form of shares you have to sell, a term deposit which has not matured yet or you may want to utilise equity from existing property or other investments.
Or perhaps the property is under construction or has not commenced construction or you bought off the plan? Or for some reason the settlement between yourself and the Vendor has been delayed.
If you find yourself in one of the above situations, then a deposit bond may be for you. A Deposit Bond is a bond or guarantee which acts as a substitute for a cash deposit on the purchase of a property.
Like many property owners today, most of your cash is probably tied up in your present home. Trying to find money for the deposit required to enter into a contract with another property can mean either a short-term bank loan or borrowing from a finance company at high interest rates. Regardless of where you obtain the finance, the interest charge, establishment fee and other upfront costs connected with the loan can be expensive and time consuming to arrange.
A Deposit Bond is often less expensive and is usually approved and issued within 24 hours of your application, thus enabling you to quickly enter into a contract on your new property.
Deposit Bonds can be particularly useful at auctions. It is often difficult to organise your cash deposit before an auction sale, especially when you are not sure whether your bid will be successful or not. The Bond amount is fixed but not the property details so you can attend a number of auctions. You simply complete the seller and property details if you are the successful bidder.
If the completion of a property is months or even years away, the Deposit Bond ensures the purchaser secures the property without the burdensome outlay of a 10% cash deposit until the property is ready to settle.
|Does the Bond cost less than other deposit options?
Bridging finance for $20,000 could cost you:
- An application fee, often 1.5% of the amount to be borrowed = $300.00
- Interest payable (assuming interest rate of 6%) for 8 weeks = $185.00
The total cost of bridging finance could be $485.00
If you purchase a Bond to represent a $20,000 deposit, the bond fee is $240 (1.2% of the deposit amount). A saving of nearly $250!
|Advantages for the Vendor
The seller will usually be anxious to obtain a contract on the property being sold and secure a deposit commitment from the buyer. A Bond can be organised within 24 hours, contracts can then be signed and the seller is guaranteed to receive the amount specified in the Bond.
The Bonds are available in all states and are readily accepted by sellers. However the seller has the sole discretion whether or not to accept the Bond.
If for some reason the settlement does not proceed, the Vendor is guaranteed the deposit.
|Frequently asked questions
Who can apply for a Bond?
Existing property owners who wish to purchase property, investors who wish to expand they property portfolio, first home buyers and some commercial property buyers.
Do you pay the Deposit at settlement?
Yes. The Bond simply represents a deposit - it does not remove your obligation to pay this money to the seller on the date the contract is to be settled.
When does the Bond terminate?
The Bond terminates on the expiry date or when the contract for sale is completed, terminated or rescinded. In the event the purchaser fails to finalise settlement and the Vendor becomes entitled to terminate the contract and retain the deposit, the Bond terminates when the guarantor pays the deposit to the Vendor.
What amount can the deposit bond represent?
Bonds can have values from $5,000 to $100,000.
What happens if I default under the Contract of Sale?
If you default under the Contract of Sale, the Vendor can claim the Bond amount from the guarantor. The Counter Indemnity (an indemnity is a written agreement which provides the guarantor the legal right to recover the amount of the Bond from the purchaser), you complete in the application gives the guarantor the right to recover this amount from you. In other words, you are in the same position as you would have been if you had used your own money - you would lose the deposit amount.
Can I get a refund if I don't use the Bond?
Yes. If you return the unused, original Bond within 60 days of issue, the fee will be partially refunded. After deducting a $100 administration charge, a cheque for the balance will be mailed to you.
For more information on AIMS Deposit Bonds,
call 1300 132 467
or send an email
to AIMS Home Loans.