Understand mortgage insurance

Mortgage insurance, MI, private MI, PMI — whatever you call it, mortgage insurance is a financial guaranty that reduces the loss to the lender or investor in the event the borrowers do not repay their mortgage.

Using mortgage insurance to reduce risk enhances the quality of the mortgage as an asset. It becomes a safer investment for lenders who keep their loans in portfolio and for investors looking for secure purchases. Even if the borrowers fail to repay, the lender/investor will not suffer a complete loss but, rather, share the loss with the mortgage insurer.