What is a Mortgage Insurance?

Mortgage insurance is for the protection of the money lender of a home loan. If the buyer of the home can not make payments and the loan money exceeds the value of the home the lender can claim this insurance. The premiums of this insurance are also paid by the buyer.

The lender will usually ask the buyer to get Mortgage Insurance when he needs to borrow more than 80% of the value of the home. Since it is possible to get even 100% of your home purchase financed by a loan these days, this is a built in check for the lender in case the buyer defaults on repayment. The lender can then claim the insurance and recover his money.

Getting this insurance does not help the buyer in any way, on the other hand, it only adds to his costs as he will be paying the premiums of this insurance in addition to the repaying of the home loan. As a result the home loan instalments work out even more expensive for the buyer.

So if you need to buy a house and want to avoid paying the mortgage insurance, here is what you need to know. Suppose you can furnish 20% of the cost of the house from your own savings, you can avoid this Mortgage Insurance. So before you decide to get the home loan it might be a good option to collect enough for the 20% deposit. That way you will be repaying a lower monthly instalment on the home loan.

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