What is Home Mortgage Insurance?

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For instance, if the home loses value and the bank must foreclose on the mortgage, PMI steps in to protect the lender from owning money to the bank after the home is sold. In other words, if the mortgage value exceeds the sale price, the previous owner has no more obligation to the loan. This protects the borrower, but also the lender, since the company is compensated for the difference in price between the mortgage value and the sale price.

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Mortgage insurance can refer to two types of insurance you may need to purchase when you purchase a home. The first type is usually voluntary and is a type of life insurance policy. If you are permanently disabled or die, this insurance policy kicks in to completely pay your mortgage, thus leaving you or survivors without the obligation of paying for a mortgage.