Congratulations! Your home loan is formally approved, and now you just need to meet the requirements for your loan to be advanced.
One of these requirements is to prove to the bank that your property is insured.
Your insurance company can provide a certificate of currency which can be given to the bank as proof of your insurance.
Alternatively, you can provide a certificate of insurance or a policy schedule as evidence of insurance instead of a certificate of currency.
How can I request it?
You can request a certificate of currency over the phone by calling your insurance company.
- Ask your insurer to note your bank on the policy as the mortgagee.
- If you’re are buying a property, then make sure that your policy starts before the proposed settlement date.
- Make sure that the building is insured for the minimum amount required by the bank. You can find this in the loan offer document or by calling your mortgage broker.
The insurer will not charge for this, and they can usually fax or email it directly to you. If they mail the certificate to you, then this can cause delays with your loan being advanced.
How should I return it to the bank?
It’s best to return the certificate of currency to the bank with your loan offer. This way, they don’t lose it!
If you’ve already sent the loan offer back to your bank, then please give the certificate to your mortgage broker, and they can pass it on.
What is mentioned in a certificate of currency?
The document establishes that the insurance contract is certified and effective up to the expiration date mentioned. A certificate of currency will most commonly include:
- Name of the insured party: The correct names of the insured party, i.e. the owner(s) of the property.
- Insured address: This can be the home address or the investment property address of the borrower.
- Policy number and expiry date: It refers to the insurance policy number and the date the contract expires.
- Protection period: This is the period of insurance. The time and date of the commencement and the expiration of the insurance should be mentioned clearly.
- Interested party: The lender’s name is mentioned as the interested party.
- Limit to protection: The maximum amount, which the insurance covers, is indicated. The applicants can nominate their own amount as long as it is at least the amount required by the lender (which is fixed after the valuation report).
- Premium paid: This explains the exact premium amount and the method of payment. Some Certificates of Currency declare the monthly repayments and the method, while others might not mention it in the contract.
Does a bank always need it?
You’ll only need to provide a certificate of currency if the property that you’re using as security is a house.
For vacant land, there’s no building to insure, so you won’t need to prove that you have insurance. Some banks ask for a certificate anyway, in which case your mortgage broker just needs to give them a call to sort this out.
If you’re building a home, then the builder’s insurance will normally cover your home until it’s complete. The bank will ask for the builder’s insurance prior to releasing the first payment to the builder.
Units and townhouses are strata title. The strata corporation will insure the building for you, and the banks won’t normally require evidence of the insurance.
What if my bank asks for my strata insurance?
In rare cases, a lender may ask for a copy of your strata insurance. You can obtain this quite easily by calling your strata manager.
If you’re buying a property, then the contact details for the strata manager are listed on the contract of sale. Or you can look through the contract of sale to see if a copy of the strata insurance is in the contract.
If you already own the property, then you can find the contact details for your strata manager on your latest strata levy notice.
For strata insurance, the lender doesn’t need to be noted as a mortgagee on the policy as this is impractical with so many units in one building.
Do I need to provide it again when I renew my insurance?
No, the bank assumes that you renew your insurance every year and will not need evidence of your renewal.
However, if you don’t renew your insurance, then it’s likely that you’re not meeting the terms of your loan agreement with the bank. If the bank becomes aware of this, then they may charge you a default interest rate or take legal action against you.
Why do banks ask for it?
Since banks and lenders hold the mortgage over the property, they ask the borrower to mention their name as the ‘mortgagee’ or ‘interested party’ in the insurance policy.
They request this procedure in order to protect themselves from damage, loss or any unexpected event. If you make a large claim on your insurance, then the insurer may notify your lender that your property has been damaged.
This is also to protect the lender in the event that the customer doesn’t insure their property!
Obviously, if a bank has taken a property as security, which then burns down, the bank could potentially be at risk if the borrower didn’t have insurance. This is why they ensure that your property is insured before advancing the loan.
If you have any further questions about your certificate of currency, please feel free to call us on 1300 889 743 or fill in our free assessment form.