Understanding How a Downsizer Bond Can Help in Your Next Property Purchase
Many people looking to downsize find it challenging to come up with a large deposit, especially when buying off the plan. Downsizer bonds offer a flexible and affordable solution, providing financial advantages over traditional deposit methods. This blog explores how downsizer bonds work and the benefits they offer to property buyers.
What Are Downsizer Bonds and How Do They Work?
Downsizer bonds are a new way to manage property purchases. They allow individuals and couples to secure a new property without having to sell their existing assets. This method helps preserve your investment portfolio while making it easier to transition to a smaller home. Downsizer bonds function as an insurance product, meaning you pay a fee for the bond, which then acts as your deposit (without there being an exchange of cash). This removes the need to liquidate assets, making the process quick and easy.
The Flexibility of Using Existing Assets
One of the key benefits of downsizer bonds is the flexibility they offer. You can retain your property, shares, or other significant assets without needing to convert them into cash for a property purchase. This approach simplifies the downsizing process and ensures that your investments continue to grow. By avoiding the immediate need to sell assets, downsizer bonds help maintain your financial stability while buying your new property.
Downsizers who have liquid funds available, may wish to retain it to make renovations to their current property prior to selling it or to use the funds for a an overseas holiday.
Fast and Cost-Effective Financial Solution
Downsizer bonds present a highly practical option for those looking to downsize their property, particularly when compared to traditional methods like bank guarantees and bridging finance. These traditional methods often come with higher fees and interest rates, making them more expensive in many cases. Additionally, the process to organise these traditional options can be lengthy, potentially causing delays that might result in missing out on a desired property.
In contrast, downsizer bonds are generally quicker to arrange. This speed can be crucial in competitive property markets where timing is everything. While they may not always be cheaper than bank guarantees, the reduced organisational time makes them a more convenient choice. The cost associated with downsizer bonds is often lower because they involve a straightforward application process and do not require liquidating existing assets, which can incur major fees in traditional financing.
The application process for downsizer bonds is straightforward and fast. Unlike the lengthy process required for traditional deposit methods, applying for a downsizer bond is simple. This process ensures that buyers can secure their properties quickly, reducing delays in the buying experience. By removing unnecessary steps, downsizer bonds provide a more accessible solution for those looking to downsize their homes.
Combining with Cash Deposits
Combining downsizer bonds with cash deposits can be a smart strategy. This approach lets you use the secure foundation of downsizer bonds while adding the liquidity of cash deposits. A downsizer may have cash available but not enough to pay the required 10% deposit. In such instances, a buyer can pay, for example, 5% cash and utilise a downsizer deposit bond for the other 5%. This combination provides flexibility and increases your purchasing power. By merging these financial instruments, buyers can approach the property market while protecting their financial well-being and making the most of their investments.
Real Life Example
Graham and Joy were looking to downsize from their home on a large property in Dural, NSW. The upkeep was becoming too much for Graham, and they both wanted to simplify their lives and enjoy their equity through travel. They chose an off-the-plan apartment in Annandale, Sydney, which required a 10% deposit now, even though settlement was two years away. With their money tied up in superannuation and home equity, an ENAYBL deposit bond provided a quick and cost-effective solution.
Financial Example
Imagine purchasing a dream property off the plan for $2,000,000 with settlement in 12 months. Normally, a buyer would need to pay $200,000 upfront. With a downsizer deposit bond, this cash remains available. This approach prevents funds from being tied up. Borrowing the $200,000 deposit against home equity at an average interest rate of 6.5% would incur $13,000 in interest over 12 months. The cost of a deposit bond for the same period would be closer to $6,000, offering substantial savings and removing the need to use the home as security.
Downsizer bonds offer a practical solution for those looking to downsize their property. By allowing the use of existing assets without the need to sell, and offering a quick application process, these bonds provide considerable financial benefits. The cost-effectiveness and application speed make downsizer bonds an attractive option for retirees and others looking to downsize. These bonds offer a practical and fast way to purchase property, making them a valuable tool in today’s real estate market.
