What is mortgage indemnity insurance?

This is one of those sneaky mortgage fees that goes by a whole raft of names.

You may hear it referred to as a mortgage indemnity guarantee (MIG), higher-lending fee or charge (HLC), additional security fee or mortgage advance premium.

In a nutshell, it's a form of insurance that you pay for but that actually benefits your lender.

It is designed to reimburse the lender if you borrow a high proportion of your property's value typically 90 per cent or more and can't keep up the repayments.

Roughly two-thirds of mortgage lenders will charge a mortgage indemnity premium for borrowing at this level.

How it works

If you fall badly behind with your repayments, your lender is perfectly entitled to evict you from your home and sell it.

Depending on the condition of the property or the prevailing market, it may end up selling for less than you owe on your mortgage.

It will then use the mortgage indemnity policy to make up the difference.

But that doesn't mean you're off the hook.

Chances are your lender will still come after you for the shortfall.

To find out more about this, read What happens if my home is repossessed?

What it costs

Each lender works out these fees slightly differently, but you can expect to be charged around £1,500 for every £100,000 you borrow.

For more on how these charges are calculated, go to How higher-lending fees are worked out.

How to avoid it

The simplest way to avoid paying this charge is to go to a lender that doesn't apply it.

But you will have to do your sums carefully.

To find out why, see Lenders that don't apply a higher-lending charge.

Alternatively, you could borrow fractionally below your preferred lender's MIG threshold.

For more on how to manage this, visit How to avoid paying a higher-lending fee.

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