FTB - Mortgage Indemnity Premium

SimonW

Hi,

I've recently been to see a financial advisor about mortgages and as I'm looking to get a 95% mortgage some lenders charge an indemnity premium on the mortgage.

I was told that although I pay this fee and in the scenario that "things go wrong" and the house gets repossessed and sold then the insurance pays out any shortfall to the lender between the sale value and the mortgage value.

I was then told that this premium only covers the lender and that I will still be liable for repaying the shortfall to the insurance company.

Is what I've been told correct?

Appears to me that a £10000 shortfall will cost me, for instance, £13000 assuming a £3000 indemnity premium.

Thanks,

Simon

AndrewSmith

Kind of yes.

The indemnity premium is to insure the lender against financial loss in the event of the property being reposessed.

Should you be reposessed the lender will still seek to reclaim any shortfall left by the sale if not enough to cover the mortgage. You are still liable for the mortgage though until the property is sold.

Basically it is an insurance that you pay for, that is for the benefit of the lender and for which they can also sue you for the proceeds anyway.

At the end of the day if it is part of the product you select, you have to pay it. If you dont want to pay it choose a lender that doesnt charge it.

Andy

SimonW

Andrew,

Thanks for the quick reply.

AndrewSmith wrote:

At the end of the day if it is part of the product you select, you have to pay it. If you dont want to pay it choose a lender that doesnt charge it.

I was thinking of going along this route and simply ignoring any mortgages with this premium added.

Thanks for clarifying this further for me.

AndrewSmith

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