What Is a Deposit Bond and When Should You Use One?
At Best Foot Forward Mortgage Solutions, we’re always looking for ways to help our clients build wealth and make smart financial decisions. Recently, we worked with a couple purchasing an off-the-plan property valued at $1,520,000, and a deposit bond turned out to be the ideal solution for their situation.
What Is a Deposit Bond?
A deposit bond is a substitute for a cash deposit when purchasing a property. Rather than paying the 10% deposit upfront, you provide the seller with a guarantee (the deposit bond) that the funds will be paid at settlement.
This is particularly helpful in off-the-plan purchases, where settlement might be several years away. Instead of locking up your cash for years, you retain access to those funds while still securing the property. In the industry they are known as “Off-The-Plan” bonds.
🔑 Important: To qualify for a deposit bond, you must have an existing property to secure the bond against. You must also have the intention to sell that property within the timeframe of the deposit bond term to ensure the deposit can be paid when settlement occurs.
When Can You Use a Deposit Bond?
You can use a deposit bond in a number of scenarios:
Purchasing off-the-plan properties with long settlement timeframes
When you’re waiting for equity to become available
To avoid liquidating investments or savings prematurely
To streamline the refinancing process when you’re reshuffling your lending structure
Avoid taking out an expensive Bridging Loan.
In our recent case, our clients needed to secure a property with a 3.5 to 5.5 year settlement period. Instead of coming up with $152,000 in cash (10% of the purchase price), they opted for a deposit bond—and it turned out to be a smart financial move.
Does a Deposit Bond Save You Money?
Yes, in many cases it can—and here’s how.
Let’s compare the cost of borrowing the 10% deposit versus using a deposit bond:
Borrowing the Deposit:
$152,000 at 5.39% (secured against the owner-occupied home, I know at a GREAT Interest rate! )
= $8,192.80 per year in interestOver 3 years: $24,578
Over 3.5 years: $28,672
Over 5 years: $40,964
Deposit Bond (5.5-year term):
Upfront cost: $45,056
But here’s the key:
If construction is completed earlier than expected, you are refunded the unused premium, which in this case made the actual quoted bond cost just $24,998—a significant saving and far less hassle.
💡 So what if you don't have the spare cash to cover the upfront cost of the deposit bond?
No problem—we added the bond cost to the refinance of the clients’ current properties. This meant they didn’t need to come up with additional funds out of pocket, allowing for a seamless, cash-flow-friendly solution, all the while getting the clients a cheaper interest rate with a refinance.
Why This Made Sense for Our Clients
By choosing a deposit bond:
They didn’t need to increase their loan by $152,000
They kept their cash available for other wealth-building goals
We streamlined the refinance process for both their owner-occupier and investment property.
They reduced both risk and cost, making the strategy aligned with their goals and not unsuitable for their financial circumstances.
They were planning to sell one of their properties within the deposit bond term, satisfying the conditions of Bond.
And most conveniently, they didn’t need to find the cash upfront to pay for the deposit Bond
Thinking of Buying Off-the-Plan?
If you're considering a future property purchase—especially off-the-plan—and you own an existing home, a deposit bond might be the perfect tool to protect your savings, reduce interest costs, and simplify your financing.
Book a call today and let’s explore if a deposit bond is the right fit for your financial strategy.
