Article

Safe Ways To Use Equity Releases And Deposit Bonds Off‑The‑Plan

How to safely combine equity release and deposit bonds for off‑the‑plan contracts, including timing, LVR limits, bank policies and worked examples for Australian buyers.

30 Sept 2026Updated 30 Sept 20267 min read

Key Takeaway

Australian buyers can safely combine equity releases and deposit bonds for off‑the‑plan contracts by first setting up a conservative equity facility (typically keeping total LVR at or below 80%) and then using it to back a deposit bond or bank guarantee, rather than paying cash upfront. Given APRA’s 3% serviceability buffer and recent RBA cash rate rises, borrowers should stress‑test repayments at rates 3% higher and maintain at least 3–6 months of expenses in cash or offset. The key actionable step is to structure separate loan splits by purpose before signing any contract.

Safe Ways To Use Equity Releases And Deposit Bonds Off‑The‑Plan

Using equity releases and deposit bonds for off‑the‑plan contracts means you fund the 10% deposit without tying up cash today, and pay the actual money at settlement using a new or refinanced loan. The safe way to do this is to set up a separate equity facility now, keep your overall LVR conservative, and only issue a deposit bond or bank guarantee once you’ve modelled your future repayments and buffers at interest rates 3% higher.

Visual overview of using home equity to fund an off-the-plan property deposit. Structuring equity releases correctly lets you fund an off‑the‑plan deposit without exhausting cash buffers.

1. How equity release and deposit bonds work together

Equity release for an off‑the‑plan deposit

Equity release is borrowing against an existing property to free up funds for another purpose, like an off‑the‑plan deposit or costs.

In practice, your broker asks your lender to:

Value your current property.
Set a safe maximum LVR (often 70–80%).
Create a new split loan or standby equity facility for the released amount.

For a focused walkthrough of safe equity facilities, see /insights/standby-equity-facilities-war-chest-opportunities-emergencies.

Deposit bond vs cash deposit vs bank guarantee

Instead of paying the 10% deposit in cash, you can often provide:

A deposit bond – an insurance product promising the deposit at settlement.
A bank guarantee – your bank guarantees payment if you fail to settle.

You still have to pay the full deposit in cash at completion. The bond or guarantee just buys time.

2. Comparing equity release, deposit bonds and bank guarantees

You’re really choosing between using cash now, using equity now, or using your balance sheet to promise cash later.

Option	When you pay cash	Typical cost (illustrative)	Security needed	Main risks
Cash deposit	At exchange	Nil direct cost	Cash in bank	Ties up savings, may limit buffers or other projects
Equity release (cash)	At exchange	Mortgage interest on equity	Existing home / investment	Higher gearing from day one, rate risk
Deposit bond (backed by equity)	At settlement	1–3% of bond amount once‑off	Equity / overall asset position	Must qualify for end loan; valuation or policy changes
Bank guarantee (using equity)	At settlement	Bank fee + facility interest	Equity at the bank	Similar to bond, plus bank facility costs

For more detail on non‑cash deposits, see /insights/deposit-bonds-bank-guarantees-when-they-work-when-they-backfire.

3. Worked example: using home equity for an off‑the‑plan unit

Scenario - Existing home value: $1,200,000 - Current home loan: $500,000 (P&I) - Proposed off‑the‑plan unit: $900,000 - Contract deposit: 10% = $90,000 - Build time: 24 months ### Step 1: Set a safe equity limit If you went to 80% LVR on the existing home: - 80% of $1,200,000 = $960,000 - Less current loan $500,000 - Theoretical maximum equity release = $460,000 Instead of maxing out, you cap the new equity split at, say, $150,000. That keeps total LVR at about 54%. This matches the conservative approach…

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Frequently asked questions

Can I use a deposit bond if I don’t have much equity yet?▾

You generally need sufficient equity or overall asset backing for a deposit bond provider to approve your application, and later for a lender to fund the purchase at settlement. If your equity position is thin now and unlikely to improve significantly before completion, a deposit bond can increase the risk of being unable to settle. In that case, reducing the purchase price or delaying may be safer.

Is interest on an equity release for an off‑the‑plan deposit tax‑deductible?▾

Deductibility depends on the purpose of the borrowing, not which property secures it. If the new property will be your home, interest on that equity‑release split is usually not deductible, even if it’s secured against an investment property. If the new property is an investment, interest on a clearly separated loan split used to buy it can generally be deductible, subject to tax advice.

What happens if the valuation at completion is lower than my contract price?▾

If the bank’s valuation at completion is below your contract price, the lender will usually base its maximum loan on the lower value. That can create a shortfall, meaning you must contribute extra cash or equity to settle even if you used a deposit bond. This is a key risk of off‑the‑plan purchases and a reason to keep overall LVRs conservative.

Can I change lenders between issuing the deposit bond and settlement?▾

You can often change lenders, but you must still meet both the bond provider’s conditions and the new lender’s credit policies at settlement. The deposit bond is simply a promise to pay the deposit; it does not guarantee that any particular bank will approve your end loan. Always treat the bond and the final finance as separate decisions with their own checks.

Is a bank guarantee safer than a deposit bond for off‑the‑plan?▾

Both bank guarantees and deposit bonds promise the vendor that the deposit will be paid if you default. A bank guarantee is issued by your bank and may involve ongoing facility fees, while a deposit bond is usually a one‑off insurance premium. Neither product removes valuation or servicing risk at settlement—the real safety depends on your income, buffers and gearing levels.

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