Mortgage Insurance

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The Real Purpose of Mortgage Insurance

Many people have a misunderstanding when it comes to mortgage insurance. In spite of what it sounds like, mortgage insurance does not insure the mortgagor (person who is borrowing the money) against his or her life. If a person gives a mortgage to a lender, in exchange for the money to purchase a property and that person suddenly dies and his or her heirs inherit the property, their is still a mortgage on that property that needs to be satisfied before they have clear title. The mortgage insurance does not protect the heirs at all. Mortgage life insurance would protect the heirs, if the borrower had a separate life insurance policy.

Mortgage insurance protects the lender, not the borrower. The borrower, however, pays the premiums on the policy. Lenders borrow money from other entities in order to provide loans to their customer. For the bank to be protected in case of default, MGIC (Mortgage Guarantee Insurance Corp.) insures the mortgage and lenders require the policy when the borrower (you) does not have the required down payment to purchase the property. It increases the monthly payment and is factored into the qualifying process.