Here's What's Behind CBA Deposit Guarantees

If you're looking to buy a home and have existing assets but don't want to convert them into cash for a home deposit, you may be eligible for a Deposit Guarantee, such as the one offered by the Commonwealth Bank.

So, what is a deposit guarantee? It is a substitute for a cash deposit that can help you to buy a property faster, as you don't need to break into your investments. For example, if you are selling your current home but need a deposit for your new home, CBA's Deposit Guarantee could help you to provide the deposit more quickly than other methods of finance, such as bridging loans or overdraft facilities.

According the CBA website, Deposit Guarantees are available to any Australian citizen or permanent resident, trust entity or corporate entity purchasing residential real estate property. A deposit guarantee such as the one offered by CBA is not for everyone though. For a start, you need to have existing investments such as shares or stocks to use as a guarantee.

The Deposit Guarantee allows eligible borrowers to make deposits of up to 10% of the purchase price and is available for a term of up to 36 months. Being able to use your existing assets as a deposit for 10% of the property's value could be advantageous, but bear in mind that most home loan types require a deposit of at least 20% to avoid needing to cover the added cost of Lenders Mortgage Insurance.

Here's something else to keep in mind. While CBA package this product as their Deposit Guarantee, in the fine print it's revealed that the bank is only acting as agents for an insurance company, Vero Insurance Limited. Vero Insurance issue their product, Deposit Power, on the basis that they will pay the deposit to the property's seller if you, as the buyer, are not able to pay for the rest of the property's sale. If this happens, Vero Insurance will try to recover the amount of the deposit from you.

Vero Insurance's Deposit Power is also used by other big banks including National Bank and Bank West, but packaged up as their own products.

Before approving an application for CBA's Deposit Guarantee, Vero Insurance must be satisfied that the borrower is able to pay the completion of the purchase. So while CBA's Deposit Guarantee appears to be a hassle-free way of getting a deposit, the approval process would still involve significant paperwork and the ability to prove your ability to make payments on the remainder of the property sale.