Mortgage Insurance

Mortgage insurance is a policy that protects a lender or titleholder if a borrower defaults, dies, or otherwise cannot meet mortgage obligations. It covers losses to the lender or property holder—not the borrower—and is commonly required when the borrower has limited equity in the home.

Key takeaways

• Mortgage insurance protects the lender or titleholder, not the borrower.
• Main types: private mortgage insurance (PMI), FHA mortgage insurance premium (MIP), and mortgage title insurance.
• Mortgage life (protection) insurance is different: it may pay off the mortgage if the borrower dies and can benefit heirs or the lender depending on the policy.
• You can often avoid PMI by putting down at least 20% or through other loan structures, but some government-backed mortgages require insurance regardless of down payment.

How mortgage insurance works

Mortgage insurance can be paid as a monthly premium, an upfront lump sum rolled into the loan, or a combination of both. Whether you need it depends on the loan type and the size of your down payment. The insurance reduces the lender’s risk, making lenders more willing to approve loans with smaller down payments.

Types of mortgage insurance

Private Mortgage Insurance (PMI)

PMI applies to conventional loans when the borrower’s down payment (or equity) is less than 20% of the home’s purchase price. Private insurers issue the policy on behalf of the lender. Borrowers may request cancellation of PMI once the loan balance falls to 80% of the original home value; exact cancellation rules can vary by loan and lender.

FHA Mortgage Insurance Premium (MIP)

FHA-backed loans require MIP regardless of down payment size. Borrowers typically pay a monthly premium plus an upfront mortgage insurance premium (UFMIP) that is usually 1.75% of the loan amount. The UFMIP can be paid at closing or financed into the loan. Depending on the FHA loan terms and down payment, MIP may apply for a set number of years or for the life of the loan.

Mortgage Title Insurance

Title insurance protects against financial loss if a title defect (such as an undisclosed lien or prior owner claim) surfaces after the sale. A title search is performed before closing to find issues, but title insurance covers problems that were missed or discovered later and that affect ownership rights.

Mortgage protection life insurance

Lenders may offer mortgage protection life insurance at application. This private policy—optional in most cases—can be declining-term (benefit decreases as the loan balance falls) or level (benefit remains constant and generally costs more). The payout may go to the lender to pay off the mortgage or to the borrower’s heirs, depending on policy terms.

How long you pay mortgage insurance

For conventional loans, mortgage insurance typically continues until you reach at least 20% equity in the home. FHA mortgage insurance timelines vary by loan type and down payment; in some cases MIP lasts for a fixed period (for example, 11 years under certain circumstances) and in other cases for the life of the loan.

What mortgage insurance covers—and what it doesn’t

Mortgage insurance protects the lender against losses from borrower default. It may help you qualify for a loan with a smaller down payment, but it does not protect you from foreclosure or guarantee you can stay in the home if you stop making payments.

How to avoid mortgage insurance

• Make a down payment of 20% or more to avoid PMI on a conventional loan.
• Choose a loan structure where the lender is compensated in other ways (for example, a higher interest rate) if the lender offers that option.
• Note: some government-backed loans (like FHA) require mortgage insurance regardless of down payment size.

Bottom line

Mortgage insurance reduces lender risk and enables buyers with smaller down payments to obtain financing. It’s important to understand which type applies to your loan, how it’s paid, how long it lasts, and how (or when) it can be removed.