What is Mortgage Insurance

Oftentimes, you will hear the word mortgage being thrown around like it was going out of fashion. But be aware that mortgages will never run out fashion as long as people are using them to help secure loans to finance whatever venture they have in mind. So what exactly is mortgage? To set your mind at ease, it a type of insurance policy that is designed as protection for the lender or the mortgagee from any defaults in payments that the borrower or the mortgager might incur; this is very commonly used with loans that come with a loan to value ratio that exceeds 80 percent. It is also used in the event that a foreclosure or repossession may happen.


This type of insurance policy is commonly paid for the mortgager or the borrower as a component to a certain final note rate or in one big amount up front. It can also be a totally separate and also itemized part of a monthly mortgage payment. For that last case, the mortgage insurance may be dropped when the mortgagee or the lender lets the borrower know that the property has managed to gain value and that the loan has then been paid down. Or it can also be a mix of both that will relegate the loan to a loan to value ratio that is under 80 percent.


Just in case something undergoes repossession, the banks, lenders, investors and all the lending bodies will then have to sell off the property to gain back their money. Or what is called their original investment which means that money that they lent a borrower. These lending bodies and financial institutions can then get rid of the physical assets like real estate, by putting them up for sale usually at a reduced price. This in turn helps them get their money back faster.


All in all, the mortgage insurance often acts as a sort of hedge in the event that a repossessing body or authority is able to recover less than the full price and market value for any and all hard assets.