A RAMS deposit bond allows a buyer to pay a deposit (up to 10% of the purchase price) using the deposit bond instead of using cash from their own accounts
A deposit bond allows a buyer to pay a deposit (up to 10% of the purchase price) using the deposit bond instead of using cash from their own accounts. No money actually changes hands until settlement.
Come settlement, the purchase price is paid in full, and the bond simply lapses.
Deposit bonds are often used for purchases where a buyer is awaiting funds from an existing sale; or an investor with adequate equity but minimal liquidity.
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Sylvia, a first home buyer, was keen on two properties, each with a price guide of approximately $500,000 and where the auctions were a month apart.
The funds intended for a deposit ($100,000) were earning her good interest in a term deposit, which had a few months remaining on its term. To break it prematurely would incur a fee and a reduction in interest paid.
Plus, there was no guarantee that Sylvia would be successful at auction anyway. So to keep her savings intact and purchase options open, a deposit bond looked like a good solution.
First, Sylvia inquired of both real estate agents whether a deposit bond would be accepted by the respective vendors.
Turns out, it was. She then applied for and obtained a deposit bond through RAMS.
Although unsuccessful at the first auction, Sylvia was the highest bidder at the second, and was able to use her RAMS deposit bond as the deposit for her first home.
As it turned out, settlement was extended because the vendors were yet to secure their next property. This delay didn’t bother Sylvia as her money was still earning interest in her term deposit, right up until settlement, when she paid the purchase price in full.