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, the Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development, provides mortgage insurance.

On Veterans Administration (VA) loans, the insurance is provided by the U.S. government in the form of a loan guarantee based on the veteran's entitlement. No mortgage insurance is required, but a one-time VA Funding Fee is added to the loan amount.

The mortgage insurance on conventional loans is typically referred to as PMI, or Private Mortgage Insurance. Private companies provide this type of mortgage insurance coverage.

As stated above, both PMI and FHA Mortgage Insurance protect the investor who owns the loan in the event of a default on the loan. These types of mortgage insurance are not “life insurance policies” and do not pay off the loan on your behalf if something should happen to you.

Contact a Loan Officer for further information.

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