What is the primary purpose of mortgage insurance?

The primary purpose of mortgage insurance is to protect the lender against borrower default. When a borrower is unable to make mortgage payments, mortgage insurance provides a financial safety net for the lender by ensuring that they can recoup some of the lost funds. This is particularly important when a borrower is made with a low down payment, as the risk of default is higher. Mortgage insurance allows lenders to offer loans to a broader range of borrowers, especially those who may not have sufficient savings for a substantial down payment.

By securing the lender's financial investment, mortgage insurance enables homeownership opportunities that might not be possible otherwise, as it mitigates the risk associated with lending. This function is crucial in the overall mortgage ecosystem, as it helps maintain lender confidence and encourages the flow of credit in the housing market.