What is Mortgage Insurance?

Mortgage insurance is an important aspect of homeownership, especially for those who are unable to make a large down payment on their home. It is designed to protect the lender in the event that the borrower defaults on their loan, and is usually required by lenders when the down payment is less than 20% of the home's value. Below is what should know about mortgage insurance.

Mortgage Insurance

Types of Mortgage Insurance

There are two main types of mortgage insurance - private mortgage insurance (PMI) and government-sponsored mortgage insurance (such as FHA insurance). PMI is typically required by private lenders, while government-sponsored mortgage insurance is required for government-backed loans.

How Mortgage Insurance Works

Mortgage insurance works by paying the lender a portion of the loan balance in the event of default. The cost of mortgage insurance is usually included in the monthly mortgage payment and is based on the loan amount, down payment, and credit score.

Cost of Mortgage Insurance

The cost of mortgage insurance can vary greatly depending on factors such as the loan amount, down payment, credit score, and type of loan. It is typically a small percentage of the loan amount, but it can add up over time.

How to Get Rid of Mortgage Insurance

In most cases, mortgage insurance can be removed once the homeowner has built up enough equity in their home. This usually happens when the home's value increases or when the homeowner makes extra payments toward the principal.

A good rule of thumb for when to apply to remove your mortgage insurance is when the loan-to-value ratio of your home reaches 80% or less. This means that you have paid off at least 20% of the original loan amount through principal payments and/or other methods. At this point, you can explore with your lender their options for removing PMI (private mortgage insurance). Additionally, if property values in your area have appreciated significantly since you purchased the home, you may be able to refinance and eliminate PMI at the same time.


There are alternatives to mortgage insurance, such as increasing the down payment or taking out a piggyback loan. However, these options may not be available or feasible for everyone.


For homebuyers who can't afford a large down payment, mortgage insurance is a crucial aspect to consider. Understanding the different types of mortgage insurance, how it affects your monthly house payments,  and the cost is vital in making the best financial decision. Be sure to talk to your lender about the expected mortgage insurance amount, as well as best practices for eliminating it early if possible. 

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