Tuesday, 5 June 2007

Where's the deposit?

As we go through the process of buying our next house, I realised that some may have a lot of their cash tied up in their current home. In today's low housing affordability climate, it would not be that difficult to spent up to 50% of your monthly salary on your mortgage. I follow my thoughts with my current bank and found that they have a product for such a situation. However, it appears on three out of the big four banks have similar products. I was not able to find any similar on Westpac's website.

Be sure to double check the terms and conditions of these products as they are significantly different. Typical conditions are a time limit of 3 months and a value limit of 10% of the property value.

Is this better than a bridging finance? Well, a deposit bond or guarantee is used in a slightly situation. The folks at the ANZ gives a good explanation of the differences

Bridging finance is a loan that lets you bridge the gap between the sale of one property and the purchase of another. Bridging finance is often used when the sale proceeds are insufficient to cover the purchase price of the new property, or when there is a time gap between the purchase of the new property and the sale of the old one. This form of finance is short term and is generally cleared from the sale proceeds of the existing property.

A deposit bond is a convenient and inexpensive way to place a deposit on a new home. The deposit bond represents all or part of the deposit on your home or investment property, saving you having to arrange your own funds in time to sign contracts.

Bridging finance also has higher premiums. The ANZ FAQ on deposit bonds has some figures. I am not really sure why the ANZ consider this as insurance.

What other ways of they to raise a deposit for a house if you are asset rich but cash poor?

My other articles on our house migration adventure are here.

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