What is the main purpose of mortgage insurance?

The main purpose of mortgage insurance is to protect the lender against losses if the borrower defaults on the loan. When borrowers make a down payment that is less than 20% of the property’s purchase price, lenders often require mortgage insurance as a safeguard. This insurance mitigates the risk for the lender, ensuring that they have some level of compensation in the event that the borrower fails to repay the loan.

By requiring mortgage insurance, lenders feel more secure in extending loans to borrowers who might otherwise be viewed as high-risk due to a smaller down payment. This serves to encourage homeownership by allowing individuals with less upfront capital to secure financing while still providing a measure of risk management for the lender.

While it may indirectly affect interest rates or the overall affordability of monthly payments, the primary role of mortgage insurance remains to protect the lender, not to directly influence the borrower’s payment structure or tax obligations.