Define: Indemnity Mortgage

An indemnity mortgage is a type of mortgage where the borrower agrees to indemnify or compensate the lender for any losses incurred if the property is sold for less than the outstanding mortgage balance.

In an indemnity mortgage, the borrower provides an indemnity or guarantee to the lender that they will cover any shortfall in the event of a sale at a loss. This protects the lender from potential financial losses.

An indemnity mortgage allows borrowers to obtain a mortgage with a lower deposit or equity, as the lender is protected against potential losses. It can also help borrowers with limited funds to enter the property market.

Yes, there are risks involved with an indemnity mortgage. If the property is sold at a loss, the borrower will be responsible for covering the shortfall, which can be a significant amount. It is important to carefully consider the potential financial implications before entering into an indemnity mortgage.

It may be more challenging to obtain an indemnity mortgage with a poor credit history, as lenders typically assess the borrower’s ability to repay the loan. However, some lenders may still consider offering an indemnity mortgage, but at higher interest rates or with stricter terms.

The indemnity clause is a standard provision in an indemnity mortgage and cannot be removed unilaterally. It is a legally binding agreement between the borrower and the lender to protect the lender’s interests.

In some cases, it may be possible to switch from an indemnity mortgage to a regular mortgage once the borrower has built up sufficient equity in the property. However, this would depend on the lender’s policies and the borrower’s financial situation.

No, the indemnity mortgage remains a legal obligation until it is fully repaid. If you sell the property, you will still be responsible for any shortfall between the sale price and the outstanding mortgage balance.

Renting out a property with an indemnity mortgage may be subject to the lender’s consent. Some lenders may require the borrower to switch to a buy-to-let mortgage or obtain their permission before renting out the property.

Transferring an indemnity mortgage to another property may not be possible, as the indemnity is typically tied to the specific property. It is advisable to consult with the lender to explore available options in such cases.