Why a certificate of currency is essential for your home loan application

Find out why your lender may request a certificate of currency to advance your home loan and how much it could cost you.

Certificate of currency home loanWhen you apply for a home loan, you need to supply all the necessary paperwork to your lender. This may include a certificate of currency, which is required to demonstrate that your property is insured.

If you need to obtain a certificate of currency, you can simply contact your insurance provider. Make sure you mention who wants the certificate (your bank or lender).

What is a certificate of currency?

A certificate of currency is a document issued by your insurance provider that confirms your insurance policy is effective and valid. It usually specifies the conditions of the insurance, including the policy type that you hold, the premium paid as well as the policy expiration date (length of cover).

When applying for a home loan, many lenders require you to supply a certificate of currency to demonstrate that you have insured your property. This is done to protect the lender in the event that your property is damaged by an unexpected event, such as theft or fire.

It’s important to realise that the certificate of currency is only valid on the day it is issued to your bank.

Why does the bank need a certificate of currency?

Most Australian home loan providers hold a mortgage over a property as collateral (or security) for the loan. Lenders therefore ask borrowers to show evidence that the property is insured to safeguard themselves.

The lender will ask you to identify itself as the mortgagee or interested party in the insurance policy. This protects the lender from unexpected damage or loss to your property. If something happened to your property, and your property was not insured, then the bank could be at risk.

The certificate of currency is generally required as part of the loan settlement process.

How can I request a certificate of currency?

You can request a certificate of currency from your insurance provider by phoning them directly or by logging in to your personal online account. Otherwise, your insurance broker can request the certificate on your behalf.

Before requesting the certificate for your lender, make sure that your property is insured for the minimum period required by your lender and that the policy commences before the assigned settlement date.

If you’re unsure of the terms required for the certificate, check with your lender before contacting your insurance provider.

When do I need to provide one?

Typically, your lender will request a certificate of currency if the security you're using for the home loan application is a house.

You do not need to offer a certificate of currency to your lender if you’re building a home; instead, you would put forward builder’s insurance (the bank will request the builder’s insurance before releasing the first instalment payment).

Additionally, lenders don’t need a certificate of currency for a unit or apartment, as the insurance is covered by strata.

Does it cost anything?

When you request a certificate of currency, insurance providers and brokers charge a nominal fee. This fee covers the cost associated with preparing the paperwork.

A certificate of currency will cost you approximately $45-$55.

What should be included in the certificate of currency?

The certificate of currency generally states that the insurance contract is effective up to a given date. It should include:

  • Insured party details. It should identify the name/s and residential address of the insured party (the borrower).
  • Policy details. It should include the insurance policy number and the date that the contract expires.
  • Limit to protection. It should specify the maximum monetary amount that the policy covers.
  • Premium paid. It should identify the amount of premium that has been paid by the insured party, as well as the date and method of payment.

Image: Shutterstock

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