Upon granting formal approval for your home loan, your lender may ask you to prove that you have insured your new property.
This means you need to obtain a certificate of currency from your insurance company. The certificate itself is free, but you need to keep a few things in mind.
How Do I Get a Certificate of Currency?
Most insurers allow you to do this over the phone. You need to make sure your insurer makes your lender the mortgagee on the certificate. Furthermore, you should ensure your insurance policy begins prior to the transaction settlement date and that your insurance covers the minimum amount that your bank requests.
You should find this minimum amount in your home loan documentation. Ask your insurer to email or fax the certificate to you. Mailing the certificate can delay the advancement of your home loan.
Give the certificate to your lender, alongside your signed loan offer. This allows you to ensure that the lender receives the certificate.
Happily, you don’t have to go through this process whenever you renew your insurance. But, failure to renew your building insurance may violate the terms of your home loan. This could result in your lender taking legal action against you.
What Does the Certificate of Currency Say?
The certificate of currency is a confirmation of the legitimacy of your insurance contract. It includes the following details:
- The full names of everybody the policy covers;
- A start and expiry date for the policy;
- The address of the property and a policy number that insurers and lenders use as reference;
- The limit to protection, which is the maximum amount that your policy covers. You can usually choose this yourself;
- Confirmation that your lender is noted as the interested party on the policy;
- Confirmation that you, as the borrower, are noted as the policy holder
- Information about the premium amount and how you will pay. Some certificates mention how much you pay monthly, whereas others omit this information.
When Does My Lender Need a Certificate of Currency?
You need to provide a certificate of currency whenever you use a house as security on a home loan. That means you shouldn’t need one if you’re using the loan to buy vacant land, though some lenders may still ask for one.
The situation changes if you’re building a new home. In these cases, your lender will ask for details of your builder’s insurance cover. Most builder’s insurance policies will cover your property until construction ends.
You won’t need a certificate of currency if your property has a strata title. Instead, the strata corporation handles the insurance. However, some lenders will ask for details of your strata insurance. Contact your strata manager to obtain a copy of the strata insurance. You should be able to find the strata manager’s details on your contract of sale, or on your most recent strata levy notice.
Note that you don’t need to list your lender as a mortgagee on a strata insurance document.
Why Does My Lender Need a Certificate of Currency?
Lenders want you to have building insurance to protect them from unexpected events, such as theft, fire, or damage to the property. That’s why they ask you to name them as mortgagees on the certificate.
Failure to take out insurance places your lender at risk. If something happens to your property, your lender may lose the money tied up in your home loan. That’s why lenders demand building insurance.
What to do now
Make sure you insure your new home before finalising your home loan agreement. You should also do the following if you have any questions:
- Search for a home loan that suits you
- Calculate how much you can borrow
- Chat to one of our advisors online
This information is general in nature and you should always seek professional advice when making financial decisions.