What is Mortgage Insurance?
• Mortgage insurance protects the lender and investor, or owner of the loan, against loss if the borrower defaults in their repayment of the loan. This type of insurance is typically required on conventional loans with a down payment of less than 20 percent. Without the added protection of mortgage insurance, most lenders would not be willing to make loans to borrowers with small down payments or would require higher interest rates to offset their risks. Any premiums collected for the payment of mortgage insurance on your loan are remitted to the company or agency providing the insurance coverage. Mortgage insurance is paid as part of your monthly payment or is financed in the loan amount or both. On FHA loans, mortgage insurance is provided by the Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development. On Veterans Administration (VA) loans, the insurance is provided by the U.S. government in the form of a loan guarantee based on the veter
A. Mortgage Insurance is paid for by the borrower and protects the lender from loss in the event the borrower defaults resulting in foreclosure. Consumers often misunderstand mortgage insurance and think of it negatively. However MI is a positive thing for borrowers in that it allows lenders to grant loans that they otherwise would not consider due to excessive risk of loss. Depending on credit scores and loan structure, mortgage insurance may be required when the down payment is less than 20%. Q.
Mortgage insurance protects the lender and investor, or owner of the loan, against loss if the borrower defaults in their repayment of the loan. This type of insurance is typically required on loans where the borrower makes a down payment of less than 20 percent. The mortgage insurance on conventional loans is typically referred to as PMI, or Private Mortgage Insurance. This type of mortgage insurance coverage is provided by private companies. These types of mortgage insurance do not pay off the loan on your behalf if something should happen to you. A properly structured loan, however, typically will not have mortgage insurance associated with it.
Simply stated, it is default insurance. When a borrower puts less than a 20% down payment on a mortgage loan, the Investor looks at the loan at a somewhat higher risk. Therefore, there is insurance required to protect that investor against a portion of the loss if the borrower stops making their mortgage payments.
