Mortgage Indemnity Guarantee

A Mortgage Indemnity Guarantee (MIG) is an insurance policy designed to protect the lender (mortgagee) against loss in the event of defaulting and ceasing to repay the mortgage. The policy may be insisted on by the lender at the start of the loan, but it is usually the borrower (mortgagor) who pays the premium.

Some mortgage lenders have in the past been criticized for not explaining clearly enough that the policy is for their benefit, not that of the borrower. The premium payable is determined by the level of perceived risk to the home lender of you defaulting on the loan. In such circumstances, the lender would repossess and sell the property, possibly at a loss.

So for example, if the property you are buying is valued at £100,000, the lender may demand you take out indemnity insurance if you are borrowing more than 75% of its value. So a home loan of £80,000 representing 80% of the property's value will leave you with an indemnity premium to pay. If you choose to borrow £90,000 (90%) of the loan, there's deemed to be a greater risk to the lender of financial loss, so the premium payable by you will be higher. Similarly, if you're looking for a 100% mortgage (and are lucky enough to find one available on reasonable terms), the chances are you'll then have to pay a hefty indemnity premium. These premiums are based on the percentage you wish to borrow above a certain threshold set by the lender.

Indemnity premiums are typically charged at up to 8% of the amount of the loan being advanced over the threshold. So, for example a 100% loan of £100,000 with a MIG threshold of 75% might have a MIG premium of £2,000 (£25,000 x 8%). Such premiums may be paid as a "one off" or added to the mortgage advance. Because many borrowers have not understood what these premiums are for, the Council of Mortgage Lenders (CML) has instituted a voluntary code which asks its members to provide a written explanation to borrowers of what this policy is. Some lenders now make a point of not charging MIGs.

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