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Mortgage Indemnity Insurance Premium

A mortgage indemnity insurance premium is payable when a lender wants to protect itself from the possibility that you will default on your mortgage.

When you take out a mortgage, particularly if you borrow more than 80% of the value of your property, the lender might insist that you also take out a mortgage indemnity guarantee. Although it is the lender that insists on the insurance, it is usually the borrower who is liable for the insurance premiums.

In the past, lenders have been criticised for not providing enough information to the borrower about what the insurance premiums are for. For example, some borrowers were not aware that the insurance was for the benefit of the lender rather than for their benefit.

The premium you will be asked to pay is determined by how much risk the lender believes there is that you will default on your loan. If you were to default on your loan, the lender would repossess your property and would often suffer a loss when it was resold, particularly if there was not much equity in the property.  Therefore, the premium will be correspondingly higher depending on the percentage of the property value borrowed.

Lenders will often have a loan to value threshold over which insurance premiums are payable and the premiums are then calculated as a percentage of the amount over the threshold.  Sometimes the premiums are paid as a one-off lump sum, or added to the amount of the mortgage. Mortgage insurance premiums are not, however, charged by all lenders.

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