A Mortgage Indemnity Guarantee (MIG) is an insurance policy that protects lenders if the mortgage repayments cease for some reason, perhaps due to death or a homeowner being made redundant at work. The MIG is NOT insurance protecting the borrower but is there to reduce the lender’s losses as a result of mortgage default.
MIGs are usually required when the borrower is taking out a mortgage with a relatively high Loan to Value (LTV) Ratio. Most mortgagees will levy a Higher Lending Charge, sometimes known as an MIG when the LTV is over 75%.
It is important to know that whilst the cost of the Mortgage Indemnity Guarantee is born by the borrower, the MIG is an insurance policy in favour of the lender. That said, without an MIG, lenders would not provide mortgages at such high LTVs, so most people are willing to pay this extra cost and obtain a larger mortgage with a smaller deposit requirement as a result.
Typically the charge for an MIG will be calculated at between 6 - 8% of the loan amount over 75% LTV. Although charges vary, most lenders will simply increase the interest rate offered in order to collect the fee, so the borrower doesn’t have to find a lump sum payment.
For more information, contact a mortgage adviser on 01628 507477.
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