What?

Also known as an additional security fee, a mortgage advance premium or a mortgage indemnity guarantee (MIG)

This is a type of insurance. It covers the mortgage-lender should your property be repossessed and the sale of the property is not enough to cover the value of the loan.

It is therefore for the lender's benefit (not yours) – if you default on your loan the lender will still want their money back. However, some mortgage offers will not be open to you unless you are willing to pay for this cover.

It is usually only levied when the value of the mortgage represents a large percentage of the total value of your home (the loan-to-value percentage).

Most lenders will charge a higher lending fee when the amount you wish to borrow represents more than 90% of the cost of your home.
 
Some lenders charge a higher lending fee for a loan-to-value percentage as low as 75% but any attempt to charge a higher lending fee when the loan-to-value percentage is less than this should prompt serious questions.
 
How much?
 
The cost of a higher lending fee will vary depending on the size of the loan and the loan-to-value percentage.
 
Although a higher lending fee is usually only charged when you want to borrow more than 90% of the value of a property, the charge will generally be based on the proportion that you borrow over 75%.
 
For example if you want to borrow 92% of the value of a property worth £100,000 you will be charged a fee based on the £17,000 difference between 75% and 92%.
 
The fee is typically 8% of this difference, therefore 8% x £17,000 = £1360 in this example.

This difference between the threshold for making the charge and the threshold for calculating the charge mean that you are being charged an extra £1360 for only borrowing an extra £2001.

This highlights the importance of avoiding the higher lending fee when possible. There are two ways to do this.
 
1) Choose a mortgage provider that does not charge a higher lending fee.

Around one-third of lenders do not charge this fee. However, you must ensure that the mathematics adds up and that you are not paying the price for avoiding the higher lending fee with a higher interest rate or other avoidable charges.
 
2) Borrow below the threshold

Now that your know the possible importance of borrowing less than 90% of the value of your property you might want to explore ways this could be achieved. For example, saving up a bigger deposit, borrowing a small amount from a friend or relative to make up the difference or even getting a low cost personal loan. Clearly the last option only makes sense if the total repayments on the loan work out lower than the additional cost of the higher lending fee.