Mortgage Indemnity Insurance

Mortgage indemnity insurance is something that comes up for a lot of first home buyers. It is usually based around the loan to value ratio of the mortgage. The loan to value ratio of the mortgage is the ratio between the amount of the loan and the actual value of the property being mortgaged. Generally lenders charge this fee when the ratio is closer to 95% which affects first time buyers more than others but due to the prevailing economic crisis, even ratios as low as %80 are affected.

This is how it works: If in the event that you do not maintain your monthly payments on the mortgage and the house is reclaimed and is eventually sold for less than the stated mortgage value, then the lender is protected from the loss that incurred by the insurance. The unfortunate part is that, even though the lender has been protected, this specific insurance entitles the insurer to claim the losses from you, even years later. Even though you have lost your home and whatever payments were up to that point, once your financial situation has improved, the insurer can come after you, even claiming interest.
There is the possibility that you could get a lender that does not charge this fee, but more likely is that the cost is hidden, either in an upfront payment or with a higher interest rate. Most buyers do not realize that this protects the lender, but offers nothing for the buyer. There was a trend that lenders were starting to drop the requirement but uncertain economic times means that most lenders will not process a mortgage unless they buyer agrees to the insurance terms.

Regardless, if there is certainty that the payments will always be maintained, then the extra payment for insurance means that you will find it far easier to get the mortgage, but with the added risk that if something was to go wrong, then you could be paying for it for years to come.