Best Buy Mortgages Glossary - Higher Lending Charge
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Higher Lending Charge
The higher lending charge, formerly known as a mortgage
indemnity guarantee (MIG), is a fee charged by a mortgage lender
where the amount borrowed exceeds a given percentage of the
value of the property. This fee may be used by the lender to
purchase an insurance policy designed to protect it (the
mortgagee) against loss in the event of you defaulting and
ceasing to repay your mortgage. The fee may be insisted on by
the lender at the start of the loan.
If for example, the property you're buying is valued at (say)
£200,000, the lender may demand a higher lending charge (HLC) if
you're borrowing more than (say) 75% of its value. So a home
loan of £160,000 representing 80% of the property's value will
leave you with an HLC to pay. If you choose to borrow £180,000
(90%) of the loan, there's deemed to be a greater risk to the
lender of financial loss, so the fee 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 HLC! These fees tend
to be based on the percentage you wish to borrow above a certain
threshold set by the lender.
HLC fees 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 £200,000 with an HLC threshold of 75% might have an HLC
premium of £4,000 (£50,000 x 8%). Such premiums may be paid as a
'one off' or added to the mortgage advance. Some lenders make a
point of not charging HLCs.
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