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Mortgage Indemnity Guarantees
If the ratio between the value of your property and the value of the loan is over 90% then you may, depending on which lender you are with, have to pay what are known as Mortgage Indemnity Guarantees (MIGs). These are often extortionate insurance policies that cover the lender in the event that you default on the mortgage, whilst you yourself receive no extra cover at all. Be careful when purchasing as MIGs can also be dressed up as Mortgage Indemnity Premiums but, whatever you call them, they are both very similar animals.
For people who are remortgaging, in most cases your loan-to-value ratio should be under the magic 90% barrier, so paying MIGs won't be a consideration. For those on the other side of the seesaw, with a LTV above 90%, the costs can be a significant percentage of your house's value: in the case of someone whose ratio on a £100,000 property was 95%, the MIGs that would be payable would amount to £1500.
One thing that should be considered if, for whatever reason, MIGs have to be paid on a mortgage is when the payment is to be made. You can sometimes be given the choice as to whether the MIG cost is added to the borrowed sum or paid upfront, but if it is added then the extra interest accrued can be of major significance - potentially the MIG could double in cost.
Whilst MIGs are fairly straightforward to calculate using a relatively simple formula, if either the maths seems too daunting or you have worked it out and seen their prohibitive costs and lack of any significant benefits, you may like to choose another type of mortgage which doesn't charge these kind of fees - in at nutshell, MIGs are best avoided.
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