A deposit bond is a guarantee, issued by an insurer, that stands in for the cash deposit when you exchange contracts. You give the vendor a bond for the deposit amount instead of cash, then pay the full price at settlement as normal.

It suits buyers whose money is tied up, such as an upgrader waiting on a sale or an off-the-plan buyer facing a long build, and it only works if the vendor agrees to take it.

How does a deposit bond work in NSW?

In NSW the deposit is usually 10 per cent of the price, paid at exchange and held in trust until settlement. With a deposit bond, the sequence changes in one place:

  • Before you offer. You apply to a bond provider, which checks that you can settle: usually a loan pre-approval or formal approval, plus evidence of the rest of your funds.
  • At exchange. Your conveyancer hands the bond to the vendor’s agent or solicitor in place of the cash deposit, on contract terms that allow it.
  • At settlement. You pay the full purchase price, deposit included, from your loan and your own funds. The bond simply expires.
  • If you fail to settle. The provider pays the vendor the deposit amount, then recovers every dollar from you. The bond moves the risk; it does not remove your liability.

A bond cannot cover more than the deposit, so it is not a way to borrow the purchase price. It is a way to delay putting cash on the table.

What does a deposit bond cost?

The fee is a percentage of the deposit amount, not the purchase price, and it depends on how long the bond has to run.

Deposit bond terms in broad outline
Type Typical use Cost guide
Short term, up to about 6 months An existing home settling in the usual 42 days, or an upgrader waiting on a sale Often around 1.3 per cent of the deposit amount
Long term, about 6 to 48 months Off-the-plan purchases with a long build Priced case by case; markedly more than a short bond

On an $800,000 purchase the 10 per cent deposit is $80,000, so a short bond at about 1.3 per cent of that would cost roughly $1,040. Providers set their own pricing and some charge more for weaker files, so get a written quote before you rely on a number.

Who uses a deposit bond?

Upgraders. Your equity is in the home you are selling and the sale has not settled. A bond lets you exchange on the next home without a bridging loan for the deposit. The bridging loans guide covers the case where the timing gap is longer than a few weeks.

Off-the-plan buyers. A deposit paid in cash sits in trust for years while the building goes up. A long-term bond keeps that money working, at a fee. The off-the-plan guide explains the valuation risk at completion, which a bond does nothing to reduce.

Buyers with money in fixed terms. Savings locked in a term deposit or invested elsewhere can stay put until settlement.

Buyers on the 5% Deposit Scheme are a different case. The scheme cuts the deposit your lender needs, not the deposit the vendor asks for at exchange. A buyer with a 5 per cent deposit can often negotiate a 5 per cent exchange deposit instead, which is cheaper than a bond. The 5% Deposit Scheme checker confirms eligibility.

Will the vendor accept a deposit bond?

Not always, so settle it first. A vendor who needs the cash deposit to fund their own purchase will say no, some developers refuse bonds on off-the-plan stock, and at auction a bond has to be agreed with the agent before bidding starts. Ask your conveyancer to confirm the contract allows a bond and to get the vendor’s agreement in writing.

Deposit bond, cash or a smaller deposit: which is better?

Three ways to cover the exchange deposit
Option Cost Main catch
Cash deposit None beyond the money itself Needs the cash available on exchange day
Negotiated smaller deposit, often 5 per cent None The vendor must agree, and the balance is due at settlement
Deposit bond A fee on the deposit amount The vendor must accept it, and you remain liable if you do not settle

If the cash is available, use it. If it is not, a negotiated smaller deposit costs nothing. A bond earns its fee when neither works: a sale that has not settled, or money committed elsewhere for months.

What should you check before you use one?

  • Finance first. A bond does not get you a loan. Without approval you can exchange and still fail to settle. Start with pre-approval.
  • The full settlement sum. At settlement you need the whole price plus stamp duty and costs. Run the figures through the buying cost calculator.
  • The expiry date. A short bond that expires before a delayed settlement creates a new problem. Match the term to the contract, with room to spare.
  • The cooling-off position. If you rescind during the NSW cooling-off period you still forfeit 0.25 per cent of the price, bond or no bond.

A worked example: buying before you sell

An upgrader agrees to buy a $1,200,000 home before selling their current one. The contract asks for a 10 per cent deposit, $120,000, at exchange, but their money is in the home they still own.

  • With a deposit bond: a short bond for $120,000, at around 1.3 per cent of the deposit amount, costs roughly $1,560. Nothing is borrowed; the bond simply sits with the vendor until settlement, when the full price is paid from the sale proceeds and the new loan.
  • With an equity release: borrowing $120,000 against the current home for a 42-day settlement costs about $828 in interest at the 6 per cent example rate, plus any lender fees and a valuation, and it needs a fresh credit assessment before exchange.
  • With cash: not available here, because the money is in the home being sold.

The cheaper route on paper is not always the better one. The bond’s cost is fixed and known before exchange, while an equity release depends on approval timing. Run both, and check the bridging loan guide if the sale may not settle before the purchase.

Deposit bond, bank guarantee or deposit release?

Ways to cover a deposit when your cash is tied up
Option Who issues it What it ties up Best suited to
Deposit bond An insurer, through a bond provider Nothing, for a fee Buyers with approved finance and a vendor who accepts bonds
Bank guarantee Your bank Usually cash or property as security Buyers whose bank offers it and a vendor who prefers a bank
Equity release Your lender, as extra borrowing Equity in your current home Owners who can service the extra debt for a short time
Cash deposit You Your savings Anyone with the funds available at exchange

Mistakes to avoid with a deposit bond

  • A bond that expires before settlement. Off-the-plan settlements move. Check the bond’s expiry date against the latest sunset date in the contract, and ask the provider how an extension works and what it costs.
  • Assuming the vendor will accept it. Raise it before you negotiate the price, not after exchange is booked.
  • Treating the bond as the deposit you have saved. At settlement you still need the full price: the loan plus your own funds, including the deposit amount the bond stood in for.
  • Forgetting the costs on top. Stamp duty, legal fees and lender costs are not covered by the bond. The buying cost calculator totals them.
  • Applying without finance in place. Providers want to see that you can settle, which in practice means a pre-approval or a formal approval.

Deposit bonds on off-the-plan purchases

Off-the-plan is where long-term bonds are most used, because the deposit would otherwise sit in a trust account for the whole build. A few points matter more than usual:

  • The term must cover the sunset date in the contract, not just the expected completion. Builds run late, and an expired bond can put you in breach.
  • The valuation comes at completion, not at exchange. If it comes in under the contract price, the bond does not help; the shortfall is yours to fund. The off-the-plan guide covers how to plan for it.
  • Your finance is assessed again at completion. A provider checks you can settle when it issues the bond; the lender checks again when the building is finished, on your circumstances at that time.
  • The fee is higher for longer terms, so compare it with the alternatives over the whole build, including leaving cash in trust.

Questions people ask

Is a deposit bond the same as a loan?

No. It is a guarantee to the vendor that the deposit will be paid. You borrow nothing from the provider unless you fail to settle, in which case the provider pays the vendor and recovers the money from you.

Can I use a deposit bond at auction?

Only if the agent and vendor have agreed beforehand. Auction contracts are unconditional, so confirm acceptance and the contract wording with your conveyancer before you bid.

Do I get the deposit bond fee back?

No. The fee is the cost of the guarantee and is not refunded, even when the purchase settles normally.

Can a first home buyer get a deposit bond?

Yes, if the provider is satisfied you can settle, usually with a loan approval and savings for the balance. Many first home buyers find a negotiated 5 per cent exchange deposit cheaper.

What happens to the bond at settlement?

You pay the full purchase price, including the deposit amount, from your loan and funds. The bond is returned or lapses, and the provider has no further role.

Charles Touma at Links Property Finance arranges the loan side of bond purchases: the approval a bond provider wants to see and the settlement figures that have to line up. If a bond is on the table for your next purchase, a short call will tell you whether it fits. General information only, not credit advice; bond pricing and acceptance vary by provider and vendor. Sources: NSW contract practice under the Conveyancing Act 1919, and published deposit bond product terms, checked 14 October 2026.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.