Mortgage Indemnity Bonds

When I took out my mortgage, many years ago, I was charged a fee for a Mortage Indemnity Bond - I understood that this was an insurance that all lenders insisted on selling customers who were borrowing more than 75% LTV.

Did they stop selling these bonds in later years?

If not, does anyone know why this bond can't be called on to soften the blow for people in negative equity who want to sell their homes?

Hi G

Most lenders stopped requiring MIGs a few years ago. EBS and KBC were the last to use them.

They are not an insurance against negative equity. They are an insurance against default.

Default seemed to mean repossession, but as there were so few repossessions in Ireland, I understand that EBS and KBC have made fewer than 10 successful claims over the years on these policies.


If a borrower defaults, the lender can claim against the insurance company but the lender must continue to try to recoup the losses from the borrower.

The insurance was very limited in any event. So if a customer borrowed 90% but had MIG from 75%, the insurance company would only pay the difference between 75% and 90% i.e. 15%.


Brendan

Did the mortgage company collect a hefty commission on these practically useless products?

Hi vandriver

I don't think so. The mortgage company paid the premium to the insurance company.

At one stage, they used to charge the borrowers for the premium, but they all stopped doing that.

Brendan

vandriver said:

Did the mortgage company collect a hefty commission on these practically useless products?

Click to expand...

A majority of lenders paid for the MIG themselves, so no. Besides the premium was a small percentage of the gap between 75% and 90% so any potential commission would have been a small percentage of that again. Unless you were buying a detached mansion in Dalkey during the boom, the amounts involved would have been unlikely to be hefty.

Thanks folks. I do remember paying for mine and being miffed, as I saw it as protection for the lender... but it was a long time ago.