Bank guarantee

The most cost-effective option for an off-the-plan purchase is a bank guarantee. The fees for these are in the 1–3% per annum range depending on the size of the guarantee and the lender. The fee is paid six months in advance, consequently and it may be that the final six-month payment may incur fees for a period longer than necessary. However, these fees are certainly lower than the interest rate on borrowings, deposit power bond premiums and in most cases the return on cash deposits.

The disadvantage of a bank guarantee can be the time it takes to arrange. As discussed above, a bank guarantee is usually secured by a first mortgage over real estate. Where the lender does not already have a mortgage over the investor’s existing property, it can take up to 60 days to have an application for a bank guarantee approved: mortgage documents must be prepared and executed. If applicable, the existing mortgagee must be paid out and the bank guarantee issued and countersigned by the issuing bank.