Choosing a mortgage
Mortgage Indemnity Guarantee (MIG)
The Mortgage Indemnity Guarantee is a charge that gets
called a number of different things:
MIG fee
Mortgage indemnity premium
Mortgage indemnity charge
High percentage lending fee
The Mortgage Indemnity Guarantee is essentially a type
of insurance against losses that lender could incur if the
property needed to be repossessed in the event of serious
arrears. It protects the lender in the event that you default
on the loan and the sale of the property is not enough to
repay the amount that they are owed. However, since the
need for the insurance arises because of the minimal size
of the deposit offered by the homebuyer, the cost of this
insurance is passed on to the borrower.
Some lenders set the Loan-To-Value threshold for paying
this as low as 75% but 90% is a more common level. Some
lenders have abolished the use of this type of fee and will
not insist upon you paying it, regardless of how much or
little you are borrowing. The MIG premium is a one-off fee
that can range from several hundred to several thousand
pounds, depending on how much you are borrowing.
Once again, you can often add this fee to the loan, but
be aware that you will then be paying interest on it until
the loan is repaid in full. If you were to add a one-off
mortgage indemnity premium of £1500 to a twenty-five year
loan, you will probably end up paying back more than double
the amount than you would by clearing it at the start. However,
with all the other costs you incur when buying, it is the
most attractive option for many people.
With a MIG fee, you are normally paying for insurance to
cover the portion of the loan over 75% of the property value,
not the whole loan. This is because even in the worst circumstances,
the lender can reasonably expect to recoup at least three
quarters of the property value. Therefore the fee is charged
in relation to that amount. Typical premiums can be up to:
For example, the MIG fee on a 95% mortgage for £100,000
could be as high as £3000. This makes the MIG fee one potentially
one of the biggest charges that a borrower is likely to
face. If you are going to be paying a MIG fee, it is worth
talking to the lender in order to find out what, if any,
thresholds they have for any steps in the size of the fee.
It may well be worth saving a few extra hundred pounds in
order to pay a big deposit and a lower fee, particularly
if you plan to add the MIG fee to your loan.
