Mortgage Indemnity Guarantee (MIG)
This is an insurance policy designed to protect the lender (the
mortgagee) against loss in the event of you defaulting and
ceasing to repay your mortgage. The policy may be insisted on by
the lender at the start of the loan, but it's usually the
borrower (the mortgagor) who pays the premium!
Some mortgage lenders have in the past been criticised 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're buying is valued at (say)
£100,000, the lender may demand you take out indemnity insurance
if you're borrowing more than (say) 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.
It will only take a few minutes of your time today but
could save you thousands of pounds in interest payments and will
eliminate any worries you may have about getting the best mortgage deal
possible.
