What are Deposit Bonds?May 27th, 2020 Home Loans 101
Deposit bonds are commonly utilised as a substitute to the initial cash payment of the 10% deposit. A deposit bond allows the buyers to pay the initial deposit required under the contract without having to draw on cash from their own personal accounts. As, no money is exchanged when utilising a deposit bond to pay the initial deposit, the entire purchase price must be paid at settlement, which in turn voids the previously tendered deposit bond. Deposit Bonds expire on the earliest of either their expiry date or the completion of the Contract of Sale.
Purchasers are advised to check whether vendors would be happy to accept a deposit bond prior to submitting an offer on a property. Most, contracts of sale require the full 10% deposit to actually be paid by a certain date to avoid breaching the terms of the contract. If a vendor refuses to accept the deposit bond, purchasers will be required to pay the full 10% in cash to avoid breaching the terms of the contract which can be costly if sort at the 11th hour.
Deposit Bonds are beneficial for investors because not only are they relatively quick and easy to arrange, but they also ensure your funds are not tied up in any one transaction.