Q:

What is a mortgage indemnity premium?

A:

Quick Answer

A mortgage indemnity premium is the additional amount a borrower or mortgagor must pay the lender to safeguard against default. Zing by Quicken Loans explains that the premium is attached to a mortgage insurance policy, which is applied to a mortgage agreement to limit the lender's default risk.

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What is a mortgage indemnity premium?
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Full Answer

Mortgage indemnity insurance premiums are typically required by mortgage lenders if the mortgagor is borrowing more than a certain percentage of the value of the home. The premium is often waived if the borrower puts down at least 25 percent of the home’s value. Mortgage indemnity premiums are often charged at up to 8 percent of the loan amount. The premium is typically attached to the mortgage loan and added to the monthly payment amount.

Mortgage indemnity policies are typically required by most lenders at the start of the mortgage loan. That said, it is the borrower who is responsible for paying the mortgage indemnity premium. The mortgage indemnity premium is determined by the perceived risk assigned to the borrower. Mortgage indemnity premium rates are elastic to the borrower’s credit risk. Borrowers perceived as default risks are forced to pay higher mortgage indemnity premiums.

According to Home.co, mortgage indemnity plans are standard in the United Kingdom. In the United States, they are often referred to as mortgage insurance plans with a "Mortgage Insurance Premium," abbreviated as MIP.

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