Mortgage insurance is defined as a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan.
Mortgage Insurance Explained
Mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home’s purchase price. The insurance purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20 percent down payment. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is maintained on conventional loans until the outstanding amount of the loan is less than 80 percent of the value of the house or for a set period of time (7 years is common). Mortgage insurance also is available through a government agency, such as the Federal Housing Administration (FHA) or through companies (Private Mortgage Insurance or PMI).
Mortgage Insurance Premium (MIP)
The MIP is the monthly payment -usually part of the mortgage payment – paid by a borrower for mortgage insurance.