Mortgage Insurance
What Is Mortgage Insurance?
Mortgage insurance is a policy that protects the lender — not the borrower — if the borrower defaults on a home loan.
It is typically required when a borrower makes a down payment of less than 20%.
Mortgage insurance allows lenders to approve loans with lower equity positions.
Why It Matters in a Mortgage
Mortgage insurance:
- Increases monthly housing costs
- Expands access to homeownership
- Reduces lender risk
There are different forms depending on loan type:
- PMI (conventional loans)
- MIP (FHA loans)
- Guarantee fees (USDA loans)
- Funding fees (VA loans)
Programs influenced by entities such as Federal Housing Administration require specific insurance structures.
How It Works
If the borrower defaults, the insurance provider reimburses a portion of the lender’s loss.
It does not prevent foreclosure or protect homeowner equity.
Mortgage Insurance vs. Homeowners Insurance
Mortgage Insurance → Protects lender
Homeowners Insurance → Protects homeowner’s property
They serve entirely different purposes.
FAQs About Mortgage Insurance
Can mortgage insurance be removed?
Sometimes, depending on loan type.
Is it tax deductible?
Depends on current tax law.
Does it affect loan approval?
Yes, it influences affordability calculations.
Related Terms
