What is the primary purpose of mortgage insurance?

The primary purpose of mortgage insurance is to protect lenders in case of borrower default. When a borrower is unable to repay their mortgage, the lender faces a financial loss, especially if the borrower defaults on a loan that has a smaller down payment. Mortgage insurance mitigates this risk by compensating the lender for some or all of the outstanding loan balance in the event of a default. This protection allows lenders to offer loans with lower down payment requirements, making homeownership more accessible for borrowers who may not have sufficient savings.

While there are other benefits associated with homeownership, such as potential tax deductions related to mortgage interest, these factors do not align with the main function of mortgage insurance. Additionally, property repairs are typically the responsibility of the homeowner and are not covered by mortgage insurance. Faster loan approvals may sometimes be a benefit of having mortgage insurance in certain scenarios but is not the primary purpose of the product. The critical role of mortgage insurance is centered around risk management for lenders, reinforcing its importance in the lending process.