What does Mortgage Indemnity Guarantee (MIG) mean?

It is an insurance policy which is most of the times required if your lender considers that you are liable to default on your mortgage payments, and it acts as a security that he will actually recover his losses in case anything happens. The borrower will actually contract a loan, and as a parallel measure he will also pay the necessary premiums for such a mortgage indemnity guarantee.

Certain accusations have been brought against the lenders in general, who many times avoided explaining in detail the benefits/drawbacks of contracting such insurance, leaving the borrower sometimes confused as to what will this insurance serve for. Certainly it is a security measure for the lender and not for the borrower.

Basically, it is known that when you buy a property through mortgage, the maximum granted by most lenders is 75% of the property’s value, and any amount greater than that is increasing the risk for the lender significantly. Now, there are mortgage schemes which offer 80%, 90%, and very rarely even 100% of the property’s value; but for borrowing such great amounts there is a rice to pay, namely expensive premiums towards the insurance policy.

Let’s say that your loan is of £200,000, and you need a mortgage of 80% which means you’d get £160,000, you will have to pay for less expensive premiums than if you would borrow 90% of its value (£180,000). Practically, as the amount borrowed raises in percentage above the set threshold (as mentioned, most of the times 75%), so do the premiums get more and more expensive.

The cost of these premiums is usually calculated as follows: anything exceeding the threshold amount is subject to an 8% interest rate. So, for example if you contract a 100% mortgage for a property which’s value is £200,000 and having a threshold of 75%, this means that you’ll have to pay indemnity premiums summing up the remainder 25% of the mortgage which is £40,000x8%, which gives a total of £3,200.

This sum you may choose to pay upfront, or it can be also added to your mortgage but then unfortunately it also becomes subject to accumulating interest, just like the whole of your mortgage amount.

4. Mortgage Offer
What does Mortgage offer mean?
The mortgage offer is practically a document which is given to you by your lender, and there you will find useful information regarding your loan. For example, after the valuation and all other necessary proceedings, within the mortgage offer there will be displayed the amount of the loan and also the term over which you have to make he repayments.
Sometimes, additional information such as the requirement of an insurance policy which will cover for the lender’s loss in case you default with your payments may be present as well. The mortgage offer becomes the utmost important document which necessitates all of your attention so that you really understand what you are agreeing to. A mortgage is a decision which’s repercussions you will feel for 25 years in most cases, so it takes acting responsibly when agreeing to an offer.