Mortgage insurance is a type of insurance policy that protects lenders against losses due to borrower default on a mortgage loan. It is typically required when the borrower makes a down payment of less than 20% of the home’s purchase price. Mortgage insurance can take different forms, such as private mortgage insurance (PMI) for conventional loans or mortgage insurance premiums (MIP) for FHA loans. The insurance premiums are paid by the borrower and can be included in the monthly mortgage payment or paid upfront. Mortgage insurance reduces the risk for lenders, enabling them to offer loans to borrowers with smaller down payments. If the borrower defaults on the loan, the insurer compensates the lender for the losses incurred.
Insurance written by an independent mortgage insurance company that protects the mortgage lender against loss experienced by a mortgage default.
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This glossary post was last updated: 29th March, 2024.
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