Mortgage insurance, often called "private mortgage insurance" or PMI for short, insures the lender against losses which could be incurred should the borrower not make payments and the loan go into default. It is this kind of insurance which allows lenders to make loans where the borrower's down payment is less than 20%. Conceptually, it is patterned after the federal government's FHA home loan programs in which the federal government guarantees lenders against the loss of default for loans on properties on which the borrower puts down as little as 3% of the purchase price.

The term "mortgage insurance" is also used for those types of life insurance policies which are used to pay off the balance of the mortgage in the event of the borrower's death. Yes, it is confusing.Homeowner's insurance, also referred to as hazard insurance, is your traditional insurance used to protect the borrower/homeowner against property loss from fire, weather, etc.

 

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