Property Home Truths

Mortgage indemnity

We are looking to buy our first home and have been told we will have to take out a mortgage indemnity policy. What does this cover and how much is it likely to cost?

Miss K Butler

Newcastle

policies cover the mortgage lender if there is a default on the loan. Most lenders insist that customers take out this insurance if they borrow above 75 per cent of the value of the property they are buying.

The policy covers the lender if the customer falls behind in their mortgage repayments and the lender has to repossess the property. Should the sale price of the property not cover the balance outstanding on the mortgage, the lender can claim under the terms of the policy to recover some of the shortfall. The cost of the policy varies, as it is based on your individual circumstances. It is usually paid when the mortgage is taken out. However, some lenders may be willing to add the cost to the mortgage loan.

At NatWest, the mortgage indemnity fee for an pounds 80,000 mortgage on a property valued at pounds 100,000 would cost pounds 205. The fee is calculated on the percentage of the property value you borrow: at NatWest it varies from 4.1 per cent for a 75-80 per cent mortgage to 10.3 per cent for a mortgage over 95 per cent.

Which fixed rate?

With mortgage rates rising, I have been advised to change my existing mortgage to a fixed-rate one. I have looked at what is available and noticed that the fixed rates on offer differ greatly, depending on the term. How do I tell which rate is best for me?

Mr P Orohoe

Cardiff

Fixed-rate mortgages offer certain advantages, the main one being the security of knowing that your mortgage payments will not be affected should interest rates rise. The fixed rates available do differ greatly, but you should remember that generally, the lower the rate the shorter the term the rate is likely to be fixed for. Some fixed-rate offers include, a "tie-in" clause whereby when the fixed term ends, the customer has to revert to the standard variable rate for a period of time.

It may be that the lowest rate is not necessarily the best for you. For advice on which fixed rate would best suit your needs, I recommend you speak to a fully-qualified mortgage adviser.

A change of name

My husband and I separated three years ago. He now works abroad and has agreed to be removed from the mortgage so that I can add my new partner to it. How do I go about this?

Ms J Vernum

Bristol

Contact your mortgage lender and let them know you wish to change the names on your mortgage. Your lender will then check that their lending guidelines are being met and that you can comfortably afford the repayments with your new partner. Once your mortgage lender has consented to the change of names, contact a solicitor to draw up the transfer document.

The transfer document is a legal document which will need to be signed by yourself, your husband and your new partner. Your lender may charge a fee for the administration work involved in the transfer, and the legal costs will also usually be paid by you.

George Wise is managing director of NatWest UK Mortgage Services.

q Send your queries on practical property issues to the following address: Home Truths, Travel & Money, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL Fax: 0171-293 2043; e-mail: sundayproperty@ independent.co.uk