Who Does Mortgage Insurance Protect?

March 27, 2006, Reviewed November 2, 2007

Mortgage insurance protects the lender against loss in the event that the borrower defaults. The borrower pays the premium, but the lender receives the protection.

Mortgage insurance has no connection to any kind of life insurance, and pays no benefits to borrowers. The sole benefit received by the borrower is that, with mortgage insurance, lenders are willing to make loans with down payments smaller than 20% of purchase price or appraised value.

As to why borrowers pay for insurance that protects only the lender, see Why Do Borrowers Pay For Mortgage Insurance?

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