What is Mortgage Insurance?
This is generally required in one form or another when the down payment is less than 20%, and protects the lender in the event of loan default. The lower the down payment, the higher the risk for the lender, and thus the higher the monthly premium. Depending on your particulars, there are ways in which mortgage insurance can sometimes be avoided at purchase, or dropped altogether at some point in the future.
Mortgage insurance, often called “private mortgage insurance,” or PMI for short, insures the lender against loss which could be incurred should the borrower not make payments and the loan goes into default. It is the kind of insurance which allows lenders to make loans when the borrower’s down payment is less than 20%. The term “mortgage insurance” is sometimes confused for a mortgage redemption life insurance policy which is used to payoff the balance of the mortgage in the event of the borrower’s death. Yes, it can be confusing. Homeowners insurance, also referred to as hazard insurance, is your traditional insurance used to protect the borrower/homeowner against loss from fire, weather, etc.
• Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It’s required primarily for borrowers making a down payment of less than 20%. Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can’t repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.
Mortgage insurance, also known as private (PMI) or lenders mortgage insurance (LMI), is an insurance policy protecting lenders from the potential default of borrowers. The policy is purchased by the lender, and the premiums are passed along to borrowers as a fee tacked onto the monthly mortgage payment. Mortgage insurance is typically required for mortgages for which the down payment is less than 20% of the purchased property’s value. To qualify for mortgage insurance, a mortgage may have to meet conditions set by the Federal National Mortgage Association (Fannie Mae). These conditions cover borrower qualifications, the type of property being borrowed against, and the size of mortgage. If the conditions are met, the insured mortgage becomes eligible for resale in the very large and liquid market for mortgage-backed securities. This allows lenders to make, or originate, more loans than they might otherwise be able to handle because older mortgages can be sold. The cost of mortgage insur
