Glossary · Australian property
Deposit bond.
An insurance-style guarantee from a deposit-bond provider that promises the vendor your deposit at settlement. Used when your deposit cash is tied up in another asset (e.g. existing-home equity, fixed-term deposits). Costs ~1-1.5% of the deposit amount.
Mechanic: deposit-bond provider issues a written guarantee to the vendor for the full 10% deposit. You don't physically transfer cash at exchange. The bond is the security. At settlement, you fund the deposit from your loan and existing-property sale proceeds. If you fail to settle, the bond provider pays the vendor and then pursues you for reimbursement.
When used: bridging-finance scenarios (buying before existing-home settlement), self-managed-super-fund acquisitions where the cash is in fixed-term assets, off-the-plan purchases with long settlement (24+ months, paying cash deposit early is opportunity cost), upgraders timing matched-settlement.
Costs: provider charges a one-time premium typically 1-1.5% of the deposit amount, capped at the bond's expiry (often equal to settlement period). $100K bond costs $1,000-$1,500. Much cheaper than securing a short-term loan against existing equity. Compare against alternative bridging mechanisms.
Vendor acceptance: most vendors accept deposit bonds for residential purchases. A small minority (typically estate sales or trust-vendors) require cash deposits. Confirm bond acceptability with the vendor's solicitor pre-exchange. Major providers: Deposit Power, Aussie Deposit Bonds, MoneyLink, others. ASIC and state Fair Trading regulate the providers.
Source
ASIC AFSL framework (deposit-bond providers hold financial services licence); state Sale of Land Acts (deposit-bond acceptance).
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