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A Mortgage Indemnity Policy is a one-off single premium insurance policy that you may possibly have to pay if you are borrowing a high percentage of your property's purchase price.
Here we take a look at the Mortgage Indemnity Policy and how it works - demonstrated by an example. We also look at how we can help.
Table of Contents:
So, a Mortgage Indemnity Policy then is an insurance policy that you could well have to pay if you are borrowing a high percentage of your property's purchase price.
The reason is that most lenders only feel comfortable lending you a maximum of 75% of the property value. So to allow you to borrow in excess of 75% of the purchase price of your property, the lender will insist that they arrange a Mortgage Indemnity Guarantee insurance policy on your behalf. This policy is often referred to as "MIG", although the correct terminology these days is the "Higher Lending Charge" (HLC).
In short, the only benefit you will gain from paying for a Mortgage Indemnity Policy (or MIG or HLC) is the ability to borrow a greater amount than 75% of the value of your property.
Basically, the Mortgage Indemnity Policy indemnifies the lender in those instances where a property is repossessed, and where the proceeds of the sale are insufficient to cover the amount owing on mortgage.
So for instance, in the case where a borrower arranges a mortgage of £95,000 on a property having a purchase price of £100,000, and where the lender requires indemnification on the amount borrowed in excess of £75,000, then a Mortgage Indemnity Policy of £20,000 will be required. Unfortunately, because of job loss, the borrower falls heavily into arrears of £3,000, and as a result, the lender invokes repossession proceedings.
The property is sold at auction, and achieves a sale price of only £90,000.
| Sale Price: | £90,000 |
|---|---|
| Mortgage Outstanding including arrears: | £98,000 |
| Shortfall: | £8,000 - |
In this case, the lender would claim £8,000 under the terms of the Mortgage Indemnity Policy.
Unfortunately, the answer is no.
Although there is a shortfall in the amount recovered from the sale, the lender will be able to recover the loss by making a claim on the insurance company. But you should be aware that the insurance company is entitled to pursue the borrower for the amount paid by the insurance company to the lender.
So, it's worth remembering that although it is the borrower who will pay the Mortgage Indemnity Premium, it is the lender alone that will be protected. Unfortunately, you as the borrower are not covered at all. The only benefit you will gain is the ability to borrow more than 75% loan to value.
Well, yes they can be!
The cost of Mortgage Indemnity Policy premiums can vary quite widely from lender to lender. So in our example, where the borrower purchases a property valued at £100,000, with a 95% mortgage, he will have to pay a Mortgage Indemnity Policy (or MIG or HLC), based on the level of borrowings, and the usual 75% MIG threshold. So, that is:
| Purchase Price: | £100,000 |
|---|---|
| x95% Mortgage | £95,000 |
| less the MIG threshold: | £75,000- |
| Therefore, cover required | £20,000 |
If we assume a Higher Lending Charge (HLC) or MIG charge of 10%, the Mortgage Indemnity Premium would be (£20,000 x 10%) £2,000.
If your mortgage is subjected to a Higher Lending Charge (HLC), most lenders charging a Mortgage Indemnity Premium will usually allow the fee to be added to the mortgage. However, wherever possible it should be paid upfront. By doing so the cost will not be spread over the mortgage term, thereby saving considerable interest payments.
No! In recent years, many lenders have decided to absorb the losses incurred in the event of property repossession. However, care must be exercised when choosing a mortgage, as it does not always follow that a lender not charging MIG, will provide better products. It is sensible to consider all the costs, fees, interest rates, incentives and other features before deciding which mortgage may be the best for you.
Yes, that's often where we can help too.
Our professionally qualified Mortgage Advisors have the knowledge, the products, and the techniques to come up with just the right solution for you. Naturally, we will be more than happy to examine your requirements, needs, circumstances and aspirations, and will then discuss the various options available to you.
So, if you do feel we can help in any way, please don't hesitate to get in touch with us. You can either enquire online or call us on Freephone 08000 282 281 - our lines are open daily including Saturdays and Sundays, from 8am until 10pm and a warm welcome awaits you. We will of course endeavour to help in any way we are able to and will be delighted to provide you with a speedy in-principle decision - whatever your circumstances!
Hopefully we have managed to explain the Mortgage Indemnity Policy for you satisfactorily and have been able to answer any questions you may have had. Don't forget there is a wealth of information throughout our site and we're only ever a free telephone call or couple of mouse clicks away and would love to hear from you!
The overall cost for comparison is 9.8% APR.
The actual rate available will depend upon your circumstances. Ask for a personalised illustration. APR variable and based on a usual case. Most customers are likely to receive a lower rate or the same rate as our overall cost for comparison rate - learn more about APR.
There are no upfront broker fees.
However, a fee may be charged on successful completion. An indication is that on conforming cases (straightforward applications with no or minimal adverse credit) a fee may be charged of up to 1% of the amount advanced, typically £795 and will depend on your circumstances.
For non-conforming cases (where case research and processing may be more complex due to adverse credit or unusual circumstances), a fee may be charged of up to 3% of the amount advanced, typically £1,995.
THINK CAREFULLY BEFORE
SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED
IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Adding existing debt to your mortgage will increase the repayment term and overall cost.
Are you worried and becoming stressed because you are having problems getting a mortgage or remortgage? Worry and stress no more! Here at Shire Direct we provide tailor made mortgage solutions to suit you, and can usually help with all kinds of circumstances including...
Remember, we're here to help, and would love to hear from you!
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