Anyone here purchased a cash bond?

I've read about guys buying cash bond to help with their servicing once they hit the DSR wall but can anyone give any recent real life examples. I know Rixter is keen on them but has anyone else been using them and did you find the banks are accepting them at face value? Are they adjusting your income so that you're now able to service bigger loans? I think Challenger are the main providers. Are there any more?
 
You mean deposit bonds? They were very popular when markets were bouyant and out of control. Meant buyers off the plan didnt have to stump up cash until it was completed. Some people effectively bought 5 IP's off the plan for a premium outlay only. ie No deposit as such. When construction was ready 2 years later you settled then sold and made all the profit for next to no interest outlay. You also used this info as basis for applying for another. It was like rolling the roulette wheel again before it stopped. Bank lent easy knowing that you were buying for $380K when valuer said it was worth $500K as markets had risen in the 2 years. With 4 in the pipe you could demonstrate you had assets of $800K on paper... Hence you could also effectively borrow 100%. Problems occurred when values crashed and nobody wanted their off the plans. Lenders didnt want to lend and buyers wanted them torn up. Thats what they did. Harry Triguboff was rumoured to sell an 80 floor site in Sydney CBD all on bonds and sent the banks and the insurers into a spin when economy dipped.

Banks dont "accept" them. Its the developer who holds it and if you dont proceed when prop is ready they can call on the insurer to cover the loss. The insurer in turn takes you on and wants recovery like a mortgage. In bad old days it was a rogues den. Its changed and a bit more on commercial terms now.

It didnt address servicability really. Just avoided need to outlay upfront cash. Its unsecured so dont tie up LOC etc. They have got a lot tougher. Now you need to demonstrate you can settle like 105-110% of the contract price or they dont issue. Used to be a lot lower...80%.

Good product info here :
http://www.depositbondaustralia.com.au/web/prod_feature.jsp

Product info is for illsutration and is not a product recommendation or advice.
 
no I think he means cashbonds. They are a financial product like a bond that pay interest and principal and after receiving this income for a time some lenders use it for servicing.

I havent personally used them yet.
 
For the brokers, what are the limitations of using these to increase serviceability? It doesn't seem to be recommended by many brokers here, so it can't be the magic bullet it seems to be.
 
For the brokers, what are the limitations of using these to increase serviceability? It doesn't seem to be recommended by many brokers here, so it can't be the magic bullet it seems to be.

Case by case some lenders will accept income streams such as annuities if the income can be shown to continue for 5 years or more.

Was a useful strategy in strong growth times pre gfc

They do burn a fair bit of fuel (equity) even if they are commuted after the loans have settled.

In many, but not all cases, serviceability shortfalls where a non rental income exists ( such as paye or business) serviceability can usually be overcome by other methods.

Ta

Rolf
 
For the brokers, what are the limitations of using these to increase serviceability? It doesn't seem to be recommended by many brokers here, so it can't be the magic bullet it seems to be.

A cashbond strategy for servicing would require at least 2 years planning in advance with the knowledge / certainty that you would have not enough income to grow your portfolio. If you actually have that much equity to burn on cashbonds, you might as well go register a company for an ABN/GST and go the lo-doc route.
 
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