Higher Lending Charge

djm1972

Hi,

I'm just going through a re-mortgage (with a little equity release at the same time); and in order to take advantage of the best rates available i've gone for a maximum 75% LTV product; borrowing the maximum amount possible based on my own conservative (I thought) estimated valuation as provided on the application form.

However, the official valuation has come back less than my estimation; and - get this - £250 short of the valuation that would cover the amount I want to borrow based on 75% LTV.

Now, fair do's to my lender; they have approved my application regardless, and on the rate that I applied for . However, they have said on the offer that because the loan is for more than 75% of the value they will be taking out indemnity insurance at their expense.

The only additional condition associated with a mortgage that has a HLC applied (and this pretty standard across the board) is that should your lender have to make claim on this policy then the insurance company may attempt to recover the losses from you.

Now, am I correct in thinking that, in the event of a repossession being necessary, that regardless of whether or not the lender has purchased indemnity insurance against your morgage you are still responsible for any shortfall between the sale price (at auction) and the amount due?

Hope this makes sense! If i'd have known they were going to send round a surveyor from a different county with zero local knowledge i'd probably have gone even more conservative and asked to borrow slightly less!

Thanks,
D.

Robert_Sterling

I think that you are right and that you would be responsible for paying the difference but the insurance is to pay the difference IF YOU CAN NOT PAY IT.

djm1972

Thanks, that's pretty much what I thought.

It wasn't until going through this process that I realised that a loan (mortgage or otherwise) secured on a property doesn't mean that if you default then the lender takes the property and that's it - if there's a shortfall you are still liable.

Although I guess this is somewhat academic anyway since if you default on the mortgage you're probably not in any position to pay the shortfall either!

UK007BullDog

Even after defaulting one is still liable to pay the insurance company. They will chase to get their money back.

The insurance is to protect the lender even though you are paying it. With interest as it is added to the loan.