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FAQ - Purchasers
Who can apply for a deposit bond?
Those eligible are:
Existing property owners who wish to purchase property,
Investors who wish to expand their property portfolio, and
First home purchasers.
Why do purchasers like deposit bonds?
Like many of today's purchasers, casn for the 5% or 10% deposit required to enter into a purchase contract is often tied up in the current home or other investments. This can mean either expensive bridging finance or borrowing from a short-term finance company at high interest rates. Regardless of where the finance is obtained, interest charges, establishment fees and other up-front costs connected with the loan can be expensive and time-consuming to arrange. Deposit bonds offers an efficient, secure alternative that saves you time and money.
Does the guarantee cost less than the other deposit options?
A six month deposit guarantee representing a $30,000 deposit would cost a once only fee of $360 (including any applicable stamp duty). Other alternatives such as short-term finance for $30,000 on the other hand could cost you:
An application fee (often 1.5% of the amount to be borrowed) = $450
Interest payable (assuming interest rate of 8%) for 6 weeks = $277
The total cost of bridging finance in this example is $727.
In this example a deposit bond can be less expensive and is usually approved and issued within 24 hours of your application, thus enabling you to quickly enter into an Offer and Acceptance on your new property. (Above example only applies to settlement less than 6 months).
Can I use the guarantee at auctions?
Yes. A guarantee can be issued prior to you attending an auction. The guarantee amount is fixed, but not the property details, so you can attend a number of auctions. You simply complete the vendor and property details on the guarantee certificate when you are the successful bidder. The guarantee is legal and available in all states however it is at the sole discretion of the vendor to accept it. The vendor is often anxious however to obtain a contract of sale on the property and secure a deposit commitment from the purchaser. The guarantee can usually be organised within 24 hours, contracts are signed and the property is sold. It is recommended that a suggested special condition (found on the back of the guarantee certificate) is inserted or annexed to the contract of sale. This condition will amend the deposit provisions and allow the guarantee to be used.
What is the counter indemnity?
The deposit bond provider issues the guarantee on the understanding that you will pay the vendor the guarantee amount on the settlement date of the contract. The counter indemnity is the legally binding right you give to the deposit bond issuer to pursue recovery against you for any part of the guarantee amount that must be paid to the vendor should the purchaser default under the contract of sale.
When does the guarantee expire or terminate?
The deposit bond ceases when the contract of sale is completed, terminated, rescinded or the expiry date occurs, whichever happens first. The guarantee also terminates when a claim is paid by the guarantor, the deposit bond Issuer.
Can I obtain a refund if I don't use the guarantee?
Yes. If you return the unused, original guarantee certificate within 30 days of issue the fee will be partially refunded. An administration fee will be deducted and the balance will be mailed to you.
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