MORTGAGE INSURANCE


MORTGAGE INDEMNITY INSURANCE

You pay for this but be aware that it only protects the lender if you can't pay back the loan.

It's often compulsory particularly if the loan to value ratio of your mortgage is above 95% - which can hit first time buyers hard.

Some mortgage lenders charge it from an 80% loan to value others don't charge it at all - though in these cases it may be hidden and you are paying for it through a higher interest rate.

It works like this: If you don't keep up your mortgage payments and your house is repossessed and sold for less than is still owed on the mortgage then the lender is insured against that loss.

The nasty sting to the tale is that the insurer may be able to claim the loss from you many years later.

There has been controversy that mortgage lenders can chase debts up to 12 years old, unlike the standard 6 years for the rest of UK businesses.

You'd think that if you've lost your home because you didn't have the money they'd leave you alone. It seems they will - until years later, after you've picked yourself up, when they'll try and get it from you with interest. Often the insurer was the same as the mortgage lender which makes things look even more unfair.

Mortgage Indemnity Insurance can cost you anything up to $1500 to keep your lender feeling safe. Most borrowers don't realise that it doesn't protect them at all and a recent trend is that the better mortgage lenders are starting to drop it. Some however still make it compulsory.

How to avoid paying Mortgage Indemnity Insurance

Some mortgage lenders don't seem to charge it - but are actually hiding it by making you pay a higher interest rate or some kind of tie in.

You could check at what level of loan to value it kicks in and borrow just below the threshold. For example, if it starts at 95% you take out a mortgage for 94.99% - a difference of only $10 on a $100,000 mortgage.