Indemnity Bond

Published: | Updated: September 17, 2017

Definition - What does Indemnity Bond mean?

An indemnity bond is an agreement in which one party will provide financial reimbursement to another party if that party experiences specific types of loses. It is, then, very similar to an insurance policy.

Indemnity bonds are commonly used in the mortgage industry to reduce risk for lenders.

Insuranceopedia explains Indemnity Bond

Because their worth often ranges from hundreds of thousands to millions of dollars, mortgages can represent significant financial investments for lending institutions. As a result, lending institutions can suffer major losses if buyers default on their mortgage loans. Many mortgage lenders seek indemnity bonds from third parties to reduce the chances that they will experience large losses. Indemnity bonds can often provide reimbursement for about 75 to 80 percent of the total value of the property.

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