What is Mortgage Insurance?

Answer:
Mortgage insurance is a type of insurance that lenders require of certain borrowers.

For example, if you don’t have the required 20 percent down payment, the lender may be willing to lend you the money if you pay for mortgage insurance. This protects the lender in case you default on the loan.

Mortgage insurance is paid for by the homeowner though the policy covers the lender. It allows buyers to get into a home with a lower down payment. For example, if you want to buy a $300,000 home, a typical down payment would be $60,000. If you don’t have that kind of cash available, your lender might let you put down $15,000 and require mortgage insurance.

Expect to pay about one half to one percent of the loan amount. In the example above, you’d pay about $185 each month for this insurance which is not tax deductible.

Mortgage insurance is also known as Private Mortgage Insurance or PMI. Mortgage insurance shouldn’t be confused with mortgage protection insurance which is different. Mortgage protection insurance is a type of life insurance policy that pays off your mortgage if you die.


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