Mortgage indemnity guarantee
See also high loan to value fee
Also known as Indemnity premium,
higher lending charge, mortgage guarantee premium and high percentage
advance fee just to name a few.
When you borrow more than 70% and 75% of the value of a property (differs from
lender to lender) the lender feels that they are taking a risk, should they ever
repossess that property they could lose money on the mortgage secured on it.
For example £100,000 house with a £85,000 mortgage this is 85% if the house is
ever repossessed the mortgage company might only get £80,000 this could be
because they they want to sell it quickly to recover their debt and minimise
there long term loses in respect of this debt. Therefore there is a loss of
£5,000 in addition to any arrears that have built up till that point.
With this in mind lenders take out a lump sum insurance policy on loans over 70%
to 75% to cover them against this eventuality, generally YOU have to pay the
premium for this plan.
Increasingly as the market has become more competitive for lenders they have
decided to pay this policy for new borrowers but most only do this up to 90%
over that level the borrower still has to pay the premium themselves.
One point that should be noted is these policies are for the benefit of the
lender and carry no protection for the borrower. As such if the property does
get repossessed and the lender loses money and then subsequently makes a claim
the insurer can and will still go after the borrower for repayment of funds.