Enter in the details of the property that you are buying and the size of the deposit guarantee that you require and our calculator will provide you with a quote from several insurers.
For larger bonds, longer term purchases or unusual situations, please speak to our mortgage brokers by calling 1300 889 743 or filling in our free assessment form.
What is a deposit bond?
A deposit bond is a guarantee from an insurance company made to the seller of a property that you will complete the purchase. You can use it instead of paying a cash deposit when you buy a property.
In the unlikely event that you do not complete the purchase, the seller can claim on the deposit bond policy and be paid the amount of the guarantee.
- You pay a once off insurance premium when your bond is issued.
- The vendor (seller) is given the deposit bond as security when you sign the contract to buy the property.
- There are short term bonds for less than six months and long term bonds for longer terms.
- The bond cannot be for more than 10% of the contract price.
Would you like to apply for a deposit bond?
Speak to our mortgage brokers by calling 1300 889 743 or fill in our free assessment form to see what is available.
Short term guarantees
A short term deposit bond is for properties that are settling within six months. They have a simple approval process and are relatively cheap.
You’ll need to provide evidence of a pre-approval or formal home loan approval as well as the contract for the property that you are buying.
The insurer is relying on your ability to get finance to ensure that you complete the contract so they don’t require you to have a high asset position.
If you are buying a property at auction then we can arrange an auction bond.
This is where we arrange a pre-approval for your home loan and a deposit bond with a maximum purchase price. You can then buy any property up to that maximum price.
You should check with the auctioneer beforehand to make sure that the bond is acceptable instead of a cash deposit.
Long term guarantees
Long term deposit guarantees are normally for off the plan properties that are settling within a couple of years. The maximum term is 5 years.
The insurer will normally require you to have significant equity in property, a large amount of cash or a significant shares to be able to qualify. If you don’t meet the equity requirements for a long term bond then we can often increase your home loan to pay for your deposit.
You can discuss your situation with us by calling 1300 889 743 or by filling in our free assessment form. We’ll let you know what options are available to you.
Getting the cheapest deposit bond
Very few people compare deposit bond premiums! There can be big differences between insurers so it pays to shop around.
Firstly, you need to know which providers can approve your bond. There isn’t much point applying for a bond and then getting knocked back.
Secondly, you can get premium quotes from several providers and apply with the cheapest one. This is something that our mortgage brokers can do for you free of charge.
Lastly, you can try asking the vendor if they will accept a 5% deposit instead of a 10% deposit! This can often halve the cost of the bond! Please note that this is often not accepted for off the plan purchases.
You shouldn’t just compare the cost of the premium. You should also consider:
- Will the vendor accept a bond from that provider?
- Can the bond be issued quickly?
- What documents will they require?
- Can you get approved for the deposit bond?
Should I get a deposit bond from my bank?
Most banks that offer deposit bonds are actually just re-branding the bond of an insurance company such as QBE or CBL Insurance Ltd.
- ANZ deposit bond: Issued by QBE insurance.
- WBC deposit protect bond: Issued by Westpac Banking Corporation.
There are also other providers such as Deposit Power, Deposit Bond Australia (DBA), Aussie Bonds and Deposit Underwriters.
Which one is right for you? Call us on 1300 889 743 or fill in our free assessment form and we’ll find you the cheapest deposit bond.
What are the differences between a deposit bond and a bank guarantee?
Both a deposit bond and a bank guarantee serve the same function, that is to provide a guarantee that the liabilities of a debtor will be met.
However, there are some key differences which determine which among these two you should opt for:
|Deposit bonds||Bank guarantees|
|Deposit bonds are unsecured. The eligibility assessment is just to ensure that you have the financial capacity to settle on the purchase.||Bank guarantees are secured and require real estate or cash security to release.|
|They have a one-off deposit bond fee.||They usually have a higher set-up and ongoing costs comparatively.|
|Deposit bond applications are more straightforward.||Bank guarantees require more paperwork.|
|They are faster to obtain.||They are comparatively slower.|
Will the vendor accept a deposit bond?
Not all sellers will accept a deposit bond instead of a cash deposit.
It could be that their solicitor or conveyancer has told them that they are risky, which is not really the case. Or maybe they would like the deposit released to them early so that they can then buy another property.
Remember, no money is actually paid to the vendor as a deposit as the deposit bond is just a guarantee. Some vendors don’t understand how this works or some developers will not accept a bond for off the plan sales.
FAQs – Deposit bonds
Is bond and deposit the same thing?
No, there are some inherent differences between a deposit bond and a cash deposit.
A deposit bond is, in essence, an insurance policy. When you take out a deposit bond, it gives the vendor security knowing that the deposit (10% of the property) will be paid to him/her in any circumstances where the deposit is forfeitable by the vendor.
A deposit bond allows the buyer to:
- Continue to earn interest as their savings remain intact.
- Avoid expensive time delays and bridging loans.
- Buy an off-the-plan property.
- Buy at auction (depends on the terms of the auction. It is recommended to let the know auctioneer know first).
However, it’s important to understand the problems with deposit bonds. Some of the drawbacks of deposit bonds are:
- Not all vendors accept deposit bonds, i.e. some vendors may want an early release of the deposit to be able to pay a cash deposit on another property.
- Some real estate agents do not accept an offer from a purchaser where a deposit bond is being used as they are paid their commission from the deposit.
- If the Contract of Sale doesn’t specify that the deposit is payable via a deposit bond, then that can create issues.
Do I need approval from the vendor to use a deposit bond to secure my purchase?
Yes, you should always check with the real estate agent or the vendor directly to ensure that they accept a deposit bond instead of a cash deposit.
If you’re planning on using a deposit bond, this has to be clearly communicated beforehand.
As a vendor may allege breach of contract if he/she is taken by surprise by its use.
Moreover, a buyer may have to incur additional costs, e.g. wasted cost for the bond, and the cost of producing the require cash, which often involves a bridging loan.
Am I eligible for a deposit bond?
To be eligible for a deposit bond:
- You must have a formal finance approval; or
- You must have at least a pre-approval that’s subject to valuation only; or
- If you’re selling a property and funds from the proceeds of the sale are enough to purchase your new property outright then you’re eligible.
If none of the above applies to you or when a property settles over six months, an asset, income and liability assessment will need to be performed. To be eligible, you or your guarantor will need to own a property with sufficient equity.
Please talk to one of our specialist mortgage brokers.
Can I get a deposit bond as a first home buyer?
Yes. As a first home buyer, you’d need formal approval or a pre-approval subject to valuation. Also, your settlement date should be less than six months away.
If the settlement is more than six months away or you don’t have a home loan approval, you can still apply for a deposit bond with a guarantor. In which case, the guarantor will also need to apply with you for a deposit bond. This is to ensure the guarantor can pay back the deposit bond amount in the unlikely event of a claim on your bond.
If you’re using a guarantor home loan, and your property settles within six months, then the guarantor doesn’t need to also sign your deposit bond.
How do I obtain a deposit bond?
Obtaining a deposit bond is relatively simple.
What supporting documents you’ll need to provide, depends on your application type.
Generally, when applying for a deposit bond, you’ll require:
- Contract of sale of the property being purchased;
- Finance approval letter from your lender; and
- Photo ID for all applicants.
For an assessment of income and equity for a bond that is settling under 6 months, insurers will also require:
- Rates notices of property owned; and
- Home loan statements.
How much does a deposit bond cost?
The cost of a deposit bond is determined by the required deposit bond amount and the required length of time.
You can use our deposit bond quote calculator above to get a quote from several deposit bond providers/insurers.
How quick can a deposit bond be issued?
Once the insurer has received a signed application, and the bond issuance fee, your deposit bond can be typically approved and issued within 4 to 48 hours.
They are released immediately once approved.
Does the bond protect me as the buyer?
No, a deposit bond is solely for the vendor, providing them security in the event that you do not complete the purchase.
If you are unable to complete the purchase then the vendor will claim on the deposit bond and the insurer will then seek to recover the amount of the guarantee from you.
Call us on 1300 889 743 or enquire online and find out more about deposit bond.