Deposit Bonds

Midas can help you with your deposit to secure the property you intend to purchase.

If you don't currently have the cash or don't want to use your cash for a property deposit, then a deposit bond could be the answer you are looking for.

What is a Deposit Bond?

A financial guarantee issued by an insurance company/underwriter to the vendor. It acts as a substitute for the cash deposit paid between signing a contract and settlement of the property. At settlement the purchaser is required to pay the full purchase price including the deposit.

The use of a Deposit Bond does not remove the obligation of the purchaser to pay the full deposit upon settlement.

The Deposit Bond can be issued for all or part of the deposit amount required, up to 10% of the purchase price. Acceptance of the Deposit Bond in lieu of a cash deposit is at the sole discretion of the vendor.

Why use a Deposit Bond?

By using a deposit bond you no longer need to cash in your shares or term deposit or refinance your house, in order to come up with a deposit on a property. A deposit bond allows you to pay the full price of the property at settlement. Some of the significant benefits of using deposit bonds are:

  • Cost Savings: the cash funds that would normally be used as an upfront cash deposit can now remain invested thereby earning you extra interest or returns. In some circumstances this could mean not having to refinance your house or take out a personal loan for the deposit, which saves you money instantly.
  • Simplicity: You may find a property when you least expect it, therefore making it difficult to access funds from a term deposit or equity in your house at short notice. A deposit bond is a much simpler way of paying for the deposit.
  • Convenience: If you have bought a house before your current house is sold, you may not have the 10% deposit available. Deposits bonds are a very quick and convenient way to overcome this issue.
  • Auctions: Deposit bonds are commonly issued before auctions allowing you to know your maximum purchase price along with having the deposit ready on the day. If you are not successful at the first auction, the deposit bond is still valid for future auctions.
  • Guarantee: Major insurance companies issue deposit bonds and these companies guarantee payment to the vendor. This guarantee cannot be cancelled once the bond has been issued.

Who can purchase a Deposit Bond?

A Deposit Bond can be purchased by existing property owners who wish to purchase another property, property investors who wish to expand their property portfolio and first home buyers. They are ideal for the "asset rich/cash poor" purchaser who has funds tied up in investments or in their home, and need to provide a deposit. They can also be used for purchasing off-the-plan property.

Where are Deposit Bonds accepted?

Deposit Bonds are legal and available in all states. It is recommended that you check with the vendor for acceptance prior to purchase.

How much do they cost?

The cost of a deposit bond is based on the value of the property and the length of time to settlement. At the very least you can expect to pay around 1.2% of the guarantee deposit price. It’s a one-off fee that’s usually partly refundable if you don’t use it.

As an example if you were purchasing a home for $400,000 and needed a 10% deposit of $40,000 to exchange contracts, it would cost you approximately $480.00 to get a deposit bond in place. 

When does the deposit bond terminate?

The bond terminates when the contract of sale completes or the deposit bond expires. The bond also terminates when the insurance company pays a claim, or the seller/vendor terminates or rescinds the contract.

Is any security required to get a deposit bond?

Most deposit bond companies require no security before issuing a deposit bond, and therefore they are an unsecured facility. This makes deposit bonds very quick to be issued, in most cases bonds are issued within 48 hours of the company receiving the required paperwork.

What happens if I don't go through with the sale?

If you do not complete the settlement of the property, the seller/vendor can claim the deposit amount from the deposit bond insurer. The insurer will then seek to recover the deposit amount plus legal costs from you under the counter indemnity. This could involve legal action if you do not pay.